Report No. 6028-CM
Cameroon
Financial Sector Report
lune 2,1986
Western Africa Region
FOR OFFICIAL USE ONLY
Document of the World Bank
This document has a restricted distribution and may be used by recipients
only in the performance of their official duties. Its contents may not otherwise
be disclosed without World Bank authorizationm
ABBREVIATIONS AND ACRONYMS
Commercial Banks
BCC - Bank of Credit and Commerce
BIAO - Banque Internationale de l'Afrique Occidentale
BICIC - Banque Internationale pour le Commerce et l'Industrie du
Cameroun
BPPC - Banque de Paris et des Pays-Bas du Cameroun
SCB - Societe Camerounaise de Banque
SGBC - Societe Ggngrale de Banques au Cameroun
Financial Establishments
SCE - SocitE Camerounaise d'Equipement
SOCCA - Societe Camernunaise de Credit Automobile
SOCABAIL - SociWtE Camerounaise de Credit Bail
SOGELEASE - Societe Generale de Leasing au Cameroun
Other Institutions of Financial Nature or Function
BCD - Banque Camerounaise de Developpement
FGEN - Fonds de Gestion de l'Epargne Nationale
FOGAPE - Fonds d'Aide et de Garantie aux Petites et Moyennes Entreprises
FONADER - Fonds National de D6veloppement Rural
SNI - Sociftg Nationale d'Investissement
CFC - Crgdit Foncier du Cameroun
CAA - Caisse Autonome d'Amortissement
CNPS - Caisse Nationale de Pr6voyance Sociale
ONCPB - Office Nationale de Commercialisation de Produits de Base
SNH - Socift6 Nationale des Hydrocarbures
Central Banks
BCEAO - Banque Centrale des Etats de l'Afrique Occidentale
BEAC - Banque des Etats de l'Afrique Centrale
AVERAGE EXCHANGE RATES
Fiscal Years
CFAF/US$
1980 - 209.2 1982 - 296.7 1984 - 409.5
1981 - 235.3 1983 - 354.7 1985 - 471.1
FOR OWFIVIL USE ONLY
CAMEROON
FINANCIAL SECTOR REPORT
Table of Contents
Psae No.
Executive Sumary *i
A. Overview: Performance and Issues 1
B. Sources, Uses and Deployment of Savings ifi
C. Financial Intermediation v
D. The BEAC, Monetary Policy and Interest Rates viii
E. Money and Capital Markets x
F. Summary Recommendations xv
I. Public Resource Mobilization and Asset Management
A. Introduction i
B. The Mechanics of Public Resource Mobilization 1
C. Planning and the Extra-budgetary Accounts 2
D. Government Savings Performance 3
E. Caisse Autonome d'Amortissement 3
F. Public Liquidity: Quasi-governmental Bodies 4
C. Conclusions and Recommendations 7
II Private Resource Mobilization and Financial Intermediation
A. Introduction 8
B. Financial Intermediation 9
C. The Adequacy of the Cameroonian Financial System 10
D. The Institutional Perspective on Limits to Finaucial
Deepening 14
E. The Efficiency of the Financial Intermediation System 19
F. Conclusions and Recommendations 20
Annex 23
This Report is based on the findings of a Bank financial sector mission to Cameroon in June-July,
1985 led by Philip Berlin. The green cover version was discussed during a subsequent mission of
February - March 1986. Mission participants included Pedro Alba, James Houston, Cristian de
BoIssieu (consultant:) and Hafes Ghanem (economists) as well as Jacques Toureille (financial
specialist) and Jorge Calderon-Rossell (UFC, capital narkets specialist). mhe Report benefited
from the important work of Nancy Benjamin on financial social accounting matrices, and with
respect to the latter enjoyed cons.-%rable support from Iradj Alikhani. Michel Drouin,
Cameroon-based consultant, protided s ibstantial background material for the mission and the
ultimate Report. Roger Tchoung.i of -he Ministry of Finance, whose services were generously
provided by the Government, ply'- - entral role in the overall effort.
This document hbas estrtd distibution an may be ud by reipInts on in te pefornune
of thei offcl dutes. I contents my not othrwbe be dicked without Wod Bank autnation.
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III. -Flows of Funds and the Cameroonian Financial aystem
A. Introduction 27
B. The Savings-Investment Process in Cameroon 28
C. Summary and Conclusions: The Impact of Oil on the
Financial System 41
IV. Central BankinA in Cameroon
A. Money and Credit 43
1. Introduction 43
2. Institutional Elements 45
3. Monetary Policy and its Conduct 46
4. The Rediscount System: An Evaluation 52
5. A Reform Program 53
B. Interest Rates 57
1. Introduction 57
2. Interest Rates and Monetary Policy 58
3. Interest Rate Selectivity 59
4. A Revision of the Interest Rate Structure 59
C. A Possible BE.AC-Zone Money Market 63
V. The Cameroonian Mor ' and Capital Market
A. Introduction 65
B. The Commercial Banking Sector 66
C. Development Banking Institutions: BCD, FOGAPE and FONADER 74
D. Capital Market Operations: Non-bank Financial Institutions 81
E. A Fonds de Gestion de l'Epargne Nationale (FGEN) 87
Appendix I : Financial and Capital Market Statistics
Appendix II : The Financial Social Accounting Matrix
EXECUTIVE SUMMARY
Prefatory Remarks
Cameroon is a basically well-managed economy with a population of
nearly 10 million people enjoying a per capita income of some $800 per
year. The country also enjoys a certain financial ease stemming from its
oil resources which generate somewhat more than 15% of its GDP, at the same
time contributiag about 45% of total budgetary resources. Proven oil
reserves are,expected to be exhausted within the next ten years, If not
sooner, and with the recent precipitous drop in prices, prospects for-this
sector are growing increasingly dim. Conscious of this, the Government has
been concerned to establish more firmly the basis for on-going growth in
the post-oil era. In both the imediate sense--the commercial banks are in
poor straits, too poor to carry out much of a development mandate--and in
the longer-run perspective as well, Cameroon's financial system is
increasingly ill-equipped to meet the needs of a sophisticated economy, tnd
it is in this context that the Government requested the World Bank to carry
out a thorough-going survey of its financial system.
For the most part the Report is addressed to the Government
itself. Description is provided more as a backdrop for the analysis and
recommendatione and less for general background. The reader seeking
general information or data (such as monetary surveys, balance of payments
or debt statistics) is unlikely to find them, except as they advance the
argument.
Recommendations with respect to sector reform (including under
the franc zone system) touch on all aspects of the system in a way which
focusses on its inter-relatedness; thus they are fairly all-encompassing.
Proposed reforms, however, are not developed to the full extent of the
detail which such reforms would merit. Here, It was felt most appropriate
for these proposals to be discussed with the Government at the general
level, following which more specific recommendations, particularly with
respect to timing, could be worked out. This said, the Report is rather
ambitious in its present scope.
A. Overview: Performance and Issues
1. The performance of the Cameroonian financial system, dominated by
the franc zone apparatus within which it must operate, has been mixed.
With the important exception of the near-insolvency of the banking system,
there are no gross or obvious problems which threaten Cameroon's financial
or economic stability, its creditworthiness, or the ability of its
financial system to perform sdequately on a day to day basis. Unlike the
situation in many other developing countries, Government finances do not
pre-empt the banking sector, but rather work to support it via budget
surpluses or the savings of the quasi-public institutions. The system has
certain structural weaknesses due to what remains an excessive dependence
upon the Central Bank, especially for medium-term loans, as a source of
funds. However, It is essentially the substantial level of public deposits
which has permitted the system to function relatively smoothly. The
process does, however, mask the factors which ultimately compromise the
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ability of the financial system to function as effectively as it should. A
longer-run problem is that the system has not developed sufficiently
effective intermediary structures to mobilize financial savlngs and
eventually replace Government deposits which the depletion of oil revenues
will ultimately require.
2. The Csmeroontan financial system essentially functions in sub-
optimal fashion with respect to its ability to provide a firm underpinning
for growth. Not only does the system fail adequately to mobilize private
financial savings, but it tends to constrain the development of financial
intermediation as well. This, in turn, impedes future economic growth
because savers are discouraged from participating in the domestic financial
system and because such financial savings as are available are diverted
from sectors of maximum productivity. With the rapid exhaustion of oil
resources and revenues, this also implies that the non-oil private sector
must be sufficiently strong, not only to replace the oil sector as a source
of financial savings necessary for groi-th, but also to provide the
wherewithal, through domestic taxation, Lo replace the oil sector as a
source of Government revenues. If the financial system remains as weak as
it presently is, there is some doubt as to whether these goals may be
achievable.
Cameroon and the Franc Zone
3. The BEAC/franc zone system has been an important element in the
development of the francophone African economies, 1I particularly in
maintaining the links of these economies with the rest of the world through
the full convertibility of their currencies. Beyond maintaining the
conditions for full convertibility, the system was originally developed to
give support to the financially underdeveloped economies of the region,
particularly with respect to the nearly non-existent commercial banking
sector, for which the common Central Bank represents a major complement.
Despite the growth of large commercial banks in the main urban centers,
there are, however, strong indications that this aspect of the system as it
currently operates is increasingly ill-adapted to Cameroon's economy, to
the point where it is more and more working to impede the development of
Cameroon's domestic financial intermediation system.
4. The system is, moreover, not as transparent as it should be for
effective management. Instr ents used under the regulatory framework of
the franc zone system for the control of the money supply are basically
overdetermined for that particular task, and mix quantity and quality
considerations in such a way that neither is adequately dealt with. As a
consequence, it is practically impossible to determine the impact of
1/ Besides Cameroon, its members include Equatorial Guinea, Chad, the
Central African Republic, the Congo and Gabon.
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different policy changes either on the domestic money supply or on other
target variables sought.
Commercial Banking
5. The commercial banking system is highly concentrated and fragile
and exemplifies many of the weaknesses of the overall financial system.
Four of a totad. of ten banks cortrol roughly 85X of all lending, thus
making free-market solutions, particularly with respect to interest-rate
determination, impracticable, at least until concentration is diminished.
6. The commercial bauks are for the most part technically insolvent,
the sector being informally (but not in fact) recapitalized by Government
deposits of undefined term. The insolvency of the sector is the result of
a number of ill-considered loans which have led to non-performing assets
which are some six times greater than bad debt reserves as presently
constituted, and which represent as much as four times banks' current
capitalization. This in turn has made the banks considerably more risk-
averse with respect to their domestic lending. This has had the result of
reducing the already limited access of smaller-scale Cameroonian investors
to capital and has probably made them even more dependent upon the informal
sector (the tontines), whose lending costs are extremely high and whose
maturities are short. The existence of these institutions, whose
activities -epresent a substantial share of total credit to the Cameroonian
economy, points up the sharp segmentation of the financial sector: there
is practically no contact, either between tontines and commercial banks or
among tontines themselves. Thus in many ways the tontines, whose
participation is usually limited to relatively few eambers, function much
like individual savers in a barter economy financing their own investments.
Because the level of intermediation, i.e., the ability of the financial
system to transfer investable resources between savers and investors
remains generally embryonic in Cameroon, high interest costs and
substantial impediments to term-transformation will continue to represent a
structural constraint to private investment until a broad-front attack is
made on the interlocking weaknesses of the system.
B. Sources, Uses and Deployment of Savings
Public Savings
7. Cameroon's public sector generates a surplus of savings over
those required to finance domestic investments at current levels, a
phenomenon which is rare among developing countries-even the oil-exporting
ones. However, should the recent sharp decline in oil prices and revenues
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be permanent, this situation will not be maintained, and considerable
adjustments with respect to fiscal policy will be required. /
8. While the Government's fiscal policies have been prudent,
resulting in a favorable evolution of public savings, the management of the
Government's portfolio is generally acknowledged to have been weak, and a
portfolio cum debt-management strategy should be established to manage
current surpluses and ultimately to enunciate government borrowing
strategies. While the Treasury currently manages such resources, there is,
by common consensus, little short or long-term rtrategy. A decree
establishing a new Caisse Autonome d'Amortissement (CAA), among others to
manage Government debt was recently promulgated. This new organization
will also, according to its new mandate, manage other surplus resources of
the Treasury, as well as carry out new borrowings on its account. While
the precise mandate of the CAA has yet to be defined, it should begin to
define a medium-tenm borrowing strategy consistent with the expected
evolution of Government surpluses/deficits, taking into account existing
interest-rate structures as well as expected oil revenue flows. For a
number of reasons essentially bearing upon the quality of overall portfolio
management, oil resources should be managed concurrently with those of the
Treasury proper, whether they have been formally repatriated and
"budgetized" or not.
Quasi-public Resources
9. In addition to Central Government savings, public resources
available from the important quasi-public bodies such as the marketing
board (ONCPB), the national provident fund (CNPS), and the national savings
fund, are substantial. These are structurally surplus organizations
presiding over a large volume of investable resources. These are
separately managed, often employed for unprogramed public investments,
and--even thoug). being important potential resources for term-lending--are
mostly deposited in short-term time deposits with the commercial banks, in
effect contributing heavily to negative term transformation. It will be
argued that these resources should be used, in part to capitalize, and in
part as a deposit base for, a new non-bank financial intermediary which
would help reinforce the now very weak financial intermediation apparatus
existing in Cameroon. They should also ultimately be used to support a
secondary market for Government (or other) securities, as well as in the
support for the eventual privatization of selected public enterprises.
Unlike the case with the CAA resoutces, strict attention would be paid to
ensuring that the new intermediary's investments were financially sound.
2/ Required Government adjustments to the sharper than expected oil price
decline, as well as projections for public savings and consumption
under different policy scenarios, are examined in a forthcoming
Country Economic Memorandum, and are not addressed here.
v -
Private Savings
10. Private savings must play an lAcreasingly limportant role in
financing domestic investments as oll resources dwindle although public
savings will for the next five- to ten-year period play the major role in
overall Camnroonian resource mobilization. In this context, however, It is
important to understand that the concern will be largely with private
financial savings, and not savings ln the national accounts sense of
consumption foregone. It La accepted in this report that savings in the
latter sense are not easily amenable to policy instruments, and
particularly interest rate levels, at- least in the relevant range
appropriate for an economy as open as Cameroon's. Thus it is important to
attract savers to ,iolding the proceeds of their savings in deposit accounts
-or In other financial Instruments. This is so for a number of reasons, the
most important being that the financial system itself should be in a
position to allocate investable resources among the most remunerative
investments.
C. Financial Intermediation
11. Observers agree that the level of financial sophistication of
Cameroon's economy is far less than it should be for its per capita income.
It is very likely that Came-oon's economic growth is being increasingly
constrained by the inability of its financial institutions to mobilize and
channel resources as required.
12. As a general rule, the capability of a financial syst , to
mobilize (financial) savings is closely associated with its efficiency in
distributing or Intermediating these resources. The better a system is set
up to supply Investable resources with characteristics of specific
attraction to borrowers with a range of different financing requirements,
the more likely It will be able to offer deposit or other Instruments to
lenders which combine, for example, different "packages" of return, risk
and maturity. These in turn should engender a greater supply response from
lenders making the choice between physical assets, currency and financial
instruments.
13. It is generally believed that as financial intermediation
increases, the Institutional distance between ultimate lender and borrower
becomes greater, thereby requiring a greater volume of money or near-money
relative to GDP to support the process. However, in many developing
countries the opposite phenomenon, termed "financial repression," is
frequently observed. This is essentially a fllght from the financial
intermediation system which is generally associated with an interest rate
structure vhf4' is Incommensurate with .nflation, risks or availability of
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banking services. 3/ Thus savers, fhequently faced with negative real
interest rates on their deposits. may turn away from the banking system,
using their savings to acqulre real assets (such as gold or livestock,
or--in the open franc zone system--foreign assets), which may diminish the
efficiency of the financial system In chamaeling resour_es to their most
productive uses.
14. A commonly used measure of the degree of financial intermediation
("financial deepening") is M2/GDP, i.e.* money plus quasi-money (time and
savings deposits). As suggested above, the level of financial
Intermedic.tion I:n an economy is Important, not only because it suggests
something about the ability of the financial system to offer Instruments
which may be of interest to savers in the constitution of their pcrtfolios,
but also because it provides some indication as to the efficiency of the
system in channeling resources to the productive sector. The greater the
range of financial instruments and institutions available, the more capable
the system is likely to be in fulfilling these requirements, and the higher
the relationship between the money stock and GDP. While there is no firmly
established causality between the financial deepening ratio and the level
of per capita GDP itself, research has shown that, up to a certain point,
a consistent and positive correlation has tended to exist.
15. Cameroon's financial intermediation level is much below that
suggested by its per capita income. This may, of course, indicate that the
relationship is weak at best. In the case of Cameroon, however, the figure
is equal to 19% of GDP, or less than two-thirds of the average level for
developing countries of similar per capita income levels. 41
16. Quantitative work suggests that domestic as we}l as international
interest rates have a very important bearing upon financial intermediation
levels. The results pertaining to interest rates are particularly
Important, for they indicate that the negative real interest rates
prevailing in Cameroon for much of the period under study have negatively
affected financial deepening and thus the efficiency of the system in
mobilizing and allocating domestic savings. They also suggest that the
differential between these rates and international rates--and more
3/ cf. Shaw & McKinnon (1973), who argue that negative real interest
rates, along with other governmet-induced distortions in the
financial system inhibit the development of financial intermediation
and reduce real growth rates.
4/ Most striking is the fact that Cameroon's financial intermediation
level is lower than all countries in the West African franc zone save
Niger; it is even somewhat lower than the ratio for the Central
African Republic.
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specifically Paris rates--have had the same impact. 5/ Thus to the extent
that domestic rates are kept below Paris rates, savings will flow to the
latter market and the domestic financial system will remain under-
developed. Given the fact that under the franc zone system the economy of
Cameroon Is, and will remain hlghly open, this effect-which bears upon
domestic prices,-real exchange rates and domestic monetary policy
generally-is unavoidable. It ts probably exacerbated by the fact that
large or expatriate firms will continue to have access to the more
sophisticated financial services of the Paris market, thereby tending to
stultify the development of such services, and financial intermediation
generally, on the Cameroonian market.
-The Informal Sector
17. Car.eroon's informal sector plays a very important role in the
overall f'-gancial system and appears to be impeding the development of a
more formal sector. A country's financial intermediation system may be
underdeveloped for a nuKber of institutional reasons having relatively
little to do with outward indicators (e.g., negative real interest rates)
of financial repression. This appears to be the situation in Cameroon,
where the informal system developed early in Cameroon'e history as an
important source of financial developmet outside of the colonial sector.
However useful the informal system may be for individuals and affinity
groups, a more fo-nal system would ultlmately provide greater benefits to
the typical clients of the existing system.
18. For the period studied (1979-1984), flow of funds analysis showed
that the informal sector played a substantial role in the provision of
credit to the domestic economy. Unfortunately, it does this under
circumstances which are not particularly conducive to financial
development, or, ultimately, to economic growth.
19. While the tontines are very effective in marshalling resources
and generating credit within social or clan affinity groups, so that
failure to repay is practically unknown (with implicit guarantees being
provided by the extended family), they do so at interest rates which are
several multiples of those of the formal sector, and for maturities which
are seldom, if ever, in excess of one year. Segmentation between formal
and informal markets, as well as among informal markets is, however,
practically complete, so that there is practically no chance for term
transformation, lending rates which are consistent with risk, or for
financial packaging which responds to specific requirements of borrowers.
5/ Specifically, for each percentage point change in domestic real
interest rates thare is a nearly identical change in the M2/GDP ratio.
Similarly, a one point increase in Paris rates (domestic rates
remaining unchanged) would bring about an almost identical fall in the
M2/GDP ratio.
viii -
(There is also no chance for borrowers from the tontines to make
effectively risky investments which may be in the public interest if not
that of the individual private saver.)
D. The BEAC, Monetary Policy and Interest Rates
20. There is good reason to believe that the franc zone system has
played a salutary role in the development of the francophone economies
associated with it. Rowever, there is also growing reason to believe that
certain aspects of its regulatory framevork may, particularly for the more
advanced countries like Cameroon, increasingly inhibit not only private
resource mobilization but also the financial development of the economy.
21. The BEAC (Banque des Ptats de l'Afrique Centrale),-since W13,
and its predecessor, the Banque Centrale des Etats de l1Afrique Equatoriale
et du Cameroun (1959) wern established under a philosophy reflecting the
assumption that domestic savings were likely to be so limited in the
extremely poor member countries that interest rates were relatively
unimportant for resource mobilization. Since it was also accepted that low
interest rates would stimulate investments, cheap money was seen as
desirable, and the Central Bank, rather than being lender of last resort,
became a co-financer of domestic investments. Moreover, because local
banking systems were so rudimentary, the Central Bank, through its
rediscount policy, played a role which in many ways substituted for the
local banking system and the market which it was meant to service.
22. Under the regulations of the common system, the BEAC is
responsible for settlng a common monetary policy for its member countries.
With a common currencf, the CFA franc, being fully convertible into the
French franc, the rules of operation for the BEAC zone countries are
basically established to ensure that domestic demand is managed in such a
way as to avoid a continuing drain on the operations account. This
account, managed by the French treasury, is In effect an overdraft facility
used to purchase all excess supplies of CPA francs on the foreign exchange
market, and thus to ensure full convertibility.
23. An important aspect of the BEAC framework is that the purely
quantitative notion of rediscount cellings is severely complicated by a
number of diverse quality elements. 6/ Rediscounts in the BEAC zone are
6/ Although following the practice of the last few decades the terms
"rediscount" or rediscountable are used throughout this Study, current
practice is to talk of "mobilization." The difference is a technical
one having to do with whether the loan documents being rediscounted
are physically delivered or not. At present the loan documents are
kept by the banks themselves, and credits are spoken of as being
mobilized, rather than rediscounted. The practical effect, however,
is identical.
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articulated as to whether they are for privileged or non-privileged uses;
whether loans are expected to be made to enterprises which may have
exceeded individual borrowing limits; whether working capital levels are
appropriate, whether the expected loan is short, medium or long-term in
maturity. and whether firms have received prior authorizations
(autorisations prealables) for medium-term borrowings. Accordingly,
different rediscount rates and bank margins may be applied, different
amounts rediscounted, or rediscounts not provided, all depending upon a
complex interplay of elements. Thus the relationship between the more
important quantitative targets and instruments Is partly obscured.
24. The system is, moreover, substantially complicated by the
multiplicity of administratively set interest rates, of which there are 21
for borrowing, and 49 for deposits. Interest rate structure and levels are
jointly determined by the BEAC--which sets base (discount) rates--and the
individual Mtnisters of Finance, who set individual margins (covering
banks' costs) which are added to the BEAC-determined base rates, so that
ultimate borrowing and lending rates may differ between countries of the
zone. With permissible margins being lower for privileged sector loans
than for ordinary re-discountable loans, commercial banks are as a
practical matter discouraged from making loans to sectors (such as small-
and medium-scale enterprises) for whom lending costs and risks are
inherently higher.
25. Fundamental changes in the overal' system are required. First,
it has been noted that nominal interest rates much below international
(Paris) rates have constrained not only resource mobilization but also the
financial deepening of the system overall. 7/ Thus to the extent possible
within the BEAC system--i.e., via the margins which are under the purview
of the Mlnisters of Finance-Cameroon's borrowing and lending rates should
be aligned with international rates. Second, a sharp compression in the
number of borrowing and lending rates is also required with a simultaneous
upward adjustment in certain banking margins to remove the disincentive
effect of low nargins.
26. Simultaneously, the overall system should be sioplified, among
others, in order to increase its transparency. In particular, rediscount
determinations by the Central Bank should bear uniquely upon determining
the overall money supply. To this end, the category of non-rediscountable
loans would be abolished so that in principle all loans would be
rediscountable. Thus quality-based considerations would be removed from
7/ It must be noted that nominal rates are important in the present
context. While negative real rates have probably contributed to
financial repression, if nominal rates are much out of line with Paris
neates (whatever the domestic rate of inflation), this will induce
capital flows which may either inhibit financial intermediation or be
destabilizing.
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the rediscount process itself. 8/ Moreover, the alignment of domestic
interest rates on International rates, apart from being indicated from a
resource mobilization/financial deepening viewpoint, would also have the
virtue of insulating the system from the imnact of interest-rate induced
capital flows, thereby simplifying demand- magement through rediscount
controls and permitting a-better assessment of the impact of the new system
on the domestic money supply. In this context, it must be understood that
real control over the domestic money supply is difficult in an open system,
and that policy instruments should be strictly reduced to a level
commensurate with achievable policy targets in order to permit a ideally
transparent relationship between policy measures and domestic money and
credit.
27. Ideally, interest rates should be left to find their own level
consistent with Central Bank monetary policy; these would In practice
probably closely approximate international levels. However, with the
highly oligopolized commercial banking sector, some regulation of domestic
interest rates based upon international rates seems advisable until a
greater degree of competition is introduced into the sector.
E. *oney and Capital Markets
Commercial Banking
28. A fundamental fact about the Cameroonian commercial banking
sector is its state of near-insolvency. Partly in recognition of this fact
the Treasury has maintained large deposits with the banking system;
together with the deposits of the quasi-public organizations these have
averaged roughly 30% of total deposits. 9/ While the basic state of the
commercial banking sector'& balance sheets with respect to its non-
performing assets remains murky, there is little doubt that if bad debts
were written off as normally required by international standards the
sector's capital base would be fully eradicated: total capitalization of
these banks (excluding the already bankrupt Cameroon Bank) according to
their own balance sheets was about CFAF 30 billion; the volume of reputed
bad debts is CFAF 120 billion.
8/ Quality control would be assured through other measures, namely those
based on permissible ratios for particular types of lending. However,
banks would have greater responsibility (with increased Ministry of
Finance supervision) of determining the quality of their portfolios
themselves.
9/ This does not, however, include the deposits of the public enterprise
sector, which would bring the total closer to 50% of aggregate bank
deposits.
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29. In any event, public sector deposits have not necessarily
rectified matters with respect to banks' overall balance sheets, and the
banks have clearly become more risk-averse with their weakened capital
base. The deposits are recognized as having contributed to banks'
liquidity, however and the banks in fact perceive themselves as being
excessively liquid. Irdeed, loan to deposit ratios have fallen sharply and
banks' foreign asset holdings have shot up since 1980, probably as
virtually risk-free loans to parent banks have become increasingly
preferred to riskier domestic loans. Thus while such assets were CFAF 1.4
billion ln January, 1980, by May, 1985 they amounted to CPAF 190.1 billion
despite a relative narrowing of interest-rate differentials vis-a-vis the
Paris interbank rate. 10/
30. Another source of weakness of the commercial banks is the
exposure they face through making term-loans sometimes considerably in
excess of term resources, thus among others making them reticent to make
term loans of increasing risk to them. An Important part of the overall
problem is their obligation to use term funds to purchase five-year bonds
in support of the activities of SNI, the national investment corporation.
Because the latter has stopped its new lending activities itself, these
resources are re-deposited with the commercial banks at considerably higher
rates and at much shorter maturities, thereby not only taxing the banks
through a form of seigniorage at a time of weakness but also potentially
contributing to their disinclination to make term loans.
31. Few of the commercial banks have the expertise to appraise,
service or monitor loans to SMEs. They are legally obliged to devote 10%
of their portfolio to SME's but this obligation is honored in the breach,
largely because it is virtually impossible for commercial banks to lend to
this risky sector at margins fixed at 2.5-3.5%. Guarantees for SME loans
have not helped much for legal and institutional reasons.
32. Also, the structure of taxation of oank operations is highly
dysfunctional. Not only are banks taxed to support the activities of SNI
and FOGAPE (the loan guarantee agency recently converted into a development
bank largely because of the failure of the BCD), but they are also obliged
to add taxes to margins which themselves are often inadequate to cover the
costs of servicing their loans. This tends to contribute significantly to
financial repression. If these taxes were removed while permitting banks
to increase the relevant margins roughly equivalently-particularly those
for the SMHs-lending which is now unprofitable could be made attractive,
10/ Government and quasi-Government deposits ordinarily earn an interest
rate of 10%. It seems to be tacitly understood that these deposits
may be placed in virtually risk-free foreign deposits (with a spread
of perhaps 2-3%), essentially as a measure toward reconstituting bank
profits. In any event, although having the regulatory apparatus to do
so, the BEAC has not put an end to this practice.
- xii -
and resources would be channeled more nearly In line with their ultimate
productivity. Sitilarly, taxes on most deposit instruments unnecessarily
reduce the rateb of return to such deposits and discourage financial
resource-mobilization. While Cameroonian ittereat rates must In any
circumstance be roughly in line with itinal international (Paris) rates.
the removal of such taxes would permit rates more nearly positive In real
terms. l1/ Estimates are that the removal of taxes on financial
instruments or loans would result In less than a one percent reduction of
total tax revenues.
33. Neither the Cameroonian Development Bank (BCD) nor the loan
guarantee organization, FOGAPE, is able to reach the SME market
effectively. BCD's portfolio is more heavily weighted to term-lending than
that of the commercial banks; a greater portion of their lending is also
slanted toward the SHE's. However, BCD's lending has been almost
completely stagnant for the last two years and It is increasingly orienting
its portfolio toward the virtually risk-free agriculture export sector,
lending which has few benefits to the producers and which probably
substitutes for foreign financlng. About 602 of FOGAPE's guarantees
benefited the wholly Government-owned BCD and FOGAPE has since been
transformed into a development banking institution itself, leaving BCD a
poorly-managed virtual shell. But FOGAPE, too, suffers from many of the
deficiencies of BCD, most notably a lack of qualified manpower.
34. Grass-roots Institutions do exist in Cameroon, but linkages
between them and apex institutions which could strengthen their
effectiveness are lacking. While the informal financial market, largely
consisting of tontines, has its weaknesses, particularly in that it
contributes little to the financial unity of the country, the tontines play
an important role in providing the social and institutional framework for
guai mteeing the lending of the resources which they collect. While it
will be difficult-although not necessarily impossible-for the formal
financial system to construct direct links to the tontines themselves,
there are a number of features which could well be emulated. Thus in many
developing countries (including 19th century Europe) one finds chains of
popular credit institutions which have some of the attributes of the
tontines in their closeness to the ultimate borrowers, whether these are
professional associations (whose members are most likely to be able to
evaluate loan proposals for related enterprises) or other types of credit
11/ Under the current BEAC system, real rates for the most part winl have
to be adjusted via changes in the inflation rate rather than the
nomiual rate (assuming the absence of taxation of financial
instruments) since nominal interest rates above international rates
could well result in real appreciation of the exchange rate by
inducing net capital inflows which in turn would raise the internal
price level. This effect has been documented for Cameroon (see Annex,
Ch. 2)
- xiii -
unions based on affinity groups, much as the tontines, Popular credit
institutions in Cameroon are usually independeut and rarely have financial
or tutelary associations with apex institutions. Not only are they thus
dependent upon their own deposits, but frequently they have little access
to the kind of-assistance or information required if they are to
participate In the modern economy. In view of this, BCD/FOGAPE could
probably most usefully function principally as suppliers of funds and
technical assistance to the grass-roots institutions; their resources
would, in turn come from a new non-bank financial intermediary (and not
necessarily BEAC) to be discussed below.
The Capital Market
35. The Cameroonian capital market can scarcely be said to exist, but
this is neither for lack of term funds, nor of demand, but purely for the
lack of the necessary institutional framewoik. To some extent this is due
to the ready possibility of medium-term rediscounts from the BEAC, since
this has to some extent made the development of term-lending facilities
unnecessary. Ultimately, however, a country's financial system must
develop as a separate entity to provide a range of Intermediation services
far beyond those provided through Central Bank rediscounting.
36. ONCPB, CNPS, the insurance companies, the savings fund and other
capital market institutions dispose of large volumes of assets which can be
considered as term resources in the sense that a substantial proportion of
these resources could ultimately be lent at medium and long-term,
particularly if aided in this by an overarching non-bank Intermediary.
However, for the most part these institutions now practice neative term
transformation, in that these term resources are deposited in short-term
time deposits with the commercial banks, where they must ordinarily be on-
lent as short-term credits if the banks are to avoid excessively
endangering their overly weak (or non-existent?) capital base. It appears
desirable that the resources available from these institutions should be
used, in part to capitalize, and in part as deposit base for, a new non-
bank financial intermediary which would help reinforce the now very weak
financial intermediation apparatus existing in Cameroon. Unlike the case
with the CAA resources, strict attention would be paid to ensuring that the
new intermediary's investments were financially viable: much of the
weakness of the existing system is due to the commingling of subsidies with
the financial system.
37. Thus in accepting deposits (together with some capital
contribution) from the structurally surplus quasi-public institutions, the
new intermediary institution could ensure the appropriate term
transformation of resources. 12/ The new institution's operations would be
12/ If producer prices are raised substantially, as the World Bank has
(Footnote Continued)
- xiv -
totally free of financially unprofitable ventures or subsidies in order to
avoid undermining the re-established financial system.
38. A major way in which the new institution would ensure term
transformation would be through the purchase of long-term debt instruments
from the commercial banks (once solvent), which, acting as-universal
banking institutions could use these resources, among others, to make long-
term loans, which are not rediscounted by the BEAC. The new Institution
could play an Important role as well as a secondary market. either (as a
separate operation from that described above) in supporting the newly-
established perticipatory loans (uprgts participatifs") designed to,
recapitalize the banks, or as an instrumentality of state divestiture of
assets in public enterprises which could be privatized, whereby such assets
could be purchased, for ultimate resale, from SNI, the state holding
company. Ultimately, as the Cameroonian capital market developed, the new
institution 13/ would play a major role in the gradual establishment of a
capital market-"bourse des valeurs".
(Footnote Continued)
argued, ONCPB (the export crop marketing board) assets may face slower
growth, if not decline. For this reason a substantial part of these
assts should be held with the new Intermediary Institution at short-
term. Should the ONCPB be phased out, the new lnstitution might
borrow at term from the CAA/Treasury to the extent required.
13/ The new institution might be baptized "Fonds de Gestion de l'Epargne
Nationale."
- xv -
SUMMARY RECOMMENDATIONS
(a) Bank Recapitalization. The most Important first step for the
Government is to nove toward the recapitalization of the
country's commercial banks, in vhich the Government owns a
minimum share of 30%. It should proceed on the basis of
independent audits by internationally recognized auditing firms.
While the Government has made some important first steps in re-
capitalization, overall financial reform is not possible without
a settlement of this issue. In negotiating the re-capitalization
of the banks with their parent organizations the Government
should make clear its intentions with respect to future reforms,
e.g., with respect to taxation of financial instruments, as an
inducement to the parent institutions.
(b) Public Finances. The Government should act to consolidate SNH
resources with other oil and non-oil resources; if it wished to
limit public clamor for the expenditure of oil resources it might
consider doing this through the establishment of a "petroleum
resources stabilization fund," according to which financial
resources would be annually released from the fund/SNH to the
budget according to a legally established formula based upon
present and projected petroleum prices, international interest
rates and changes in proven reserves. Moreover, resources from
this source, as well as from foreign borrowing, should be
consolidated with normal budget resources with respect to the
plan.
(c) An Analytical Budget. In order to make the best use of public
savings, a rolling plan consolidating budgetary revenue and,
ultimately, domestic and foreign savings should be drawn up.
This could be done on a purely analytical basis, thereby avoiding
the necessity for a formel reconstruction of the current
budgeting system. The consolidated rolling plan would represent
the envelope within which recurrent and capital expenditures
would be cast, with capital expenditures essentially representing
the residual once current expenditures-themselves linked with
previous years' capital expenditures-were budgeted for. Part of
budget resources would be the payments from the petroleum
resources stabilization fund.
(d) Taxation, Still with respect to its public finances, the
Goverament should consider tax reductions as a meane of (a)
transferring public savings to private investors, particularly
with respect to agricultural prices, and (b) improving the
operation of the financial markets in mobilizing and allocation
resources, specifically through the reductions of the taxes on
borrowing (TDC and ICAY' or on lending, (TPCRH). The abolition
of these taxes would cobt the budget less than one percent of
total revenues.
-xvi-
(e) Establishment of the CAM. In setting up the CAA the Government
should immediately proceed to establish the extent of its
mandate, and determine its strategies and priorities,
particularly with respect to establishing a borrowing strategy
which would manage the exploitation of the dwindling petroleum
assets (either in the ground or as converted into financial
assets) along with other foreign and domestic assets and
liabilities. Because the new institution would be oriented
towards activities such as assisting in the recapitalization of
the banks its aspets would largely be those of the eentral
government, and - of the quasi-public bodies such as the ONCL'B.
As is the case in the Ivory Coast, this aspect of the CAA's
activities should be kept separate from those involving
Government debt management.
(f) Changes in the BEAC System. 14/ In order to mitigate the
constraints of the BEAC system on its financial resource
mobilization and deepening, Cameroon should (i) align its
interest rate structure on world rates; (ii) make major changes
in the rules under which it works within the system, to wit:
abolish the distinction between rediscountable and non-
rediscountable assets and make all loans rediscountable in
principle, and move to global rentraints on credit through an
"encadrement de credit" system; and (iii) implement the current
de lure reserve requirement, enacted in 1977 but not yet applied,
in a way which is consistent with the system of encadrement de
credit.
(g) The Establishment of a "Fonds de Gestion de l'Epargne Nationale.
The new Fonds would be a multi-purpose non-bank financial
iutermediary which might be run by an official board of directors
including Ministers of Finance and Plan and National Governor of
the BEAC which would set its priorities and strategies. 15/
14/ The proposed changes have been designed to be consistent with the
overall operating rules of the BEAC and within the authority of the
individual members (e.g., Cameroon) to carry out. However, the
proposed changes would probably have zone-wide implications. In this
context, proposals put forward internally for an interbank money
market now before the BEAC Board of Directors can only be considered
for the zone as a whole.
15/ In any event, the Fonds should enjoy a considerable degree of autonomy
from the Government. Thus there may be some argument for the exercise
of its control through a supervisory body (Commission de Surveillance,
rather than a Board of Directors) which might be broadly
representative of the economic interests of the country, thus possibly
(Footnote Continued)
- xvii -
Increasingly, the Fonds could substitute for the BEAC in its
operations. It would use the financial resources of quasi-public
surplus agencies, such as the ONCPB and the CNPS, as well as
those from some private institutions (e.g., insurance companies)
and transform these into term resources through long-term lending
to the commercial banks. It would also function as a secondary
market, particularly for SNI-centered operations (such as
providing the resources for purchasing financial assets
associated with the privatization of a part of the SNI
portfolio). It might also support,-through its resources, the
development of a network of grass-roots lending operations. In
any event, the full range of Fonds interventions in the
Cameroonian financial sector needs to be articulated with
considerable care. Should the new institution come under the
aegis of the CAA, its capital market functions should be kept
organically separate from other functions - such as debt
management and Treasury portfolio management, which may be
assigned to it.
(h) The SNI. Consistent with the public enterprise rehabilitation
program, the SNI would most appropriately become a manager of
enterprises selected to remain in the Government's portfolio;
others would gradually be privatized (or liquidated) through the
support of the Fonds. The bons d'equipement supporting SNI
current operations would be retired at maturity; any new
financial resources would be borrowed at market rates, possibly
from the Fonds.
(i) BCD/FOGAPE/FONADER and the SME-Rural Credit Network. BCD and
FOGAPE should ultimately be merged, with their manpower resources
being used to develop and support a new and/or expanded network
of grass-roots institutions providing SME credits; FONADER might
play the same role with respect to rural credit (although some of
the institutions in question would doubtlessly provide credits to
both SME's and agricultural producers). There would be two
levels of intermediation: (i) the Fonds. which would rediscount
the loans of BCD/FOGAPE/PONADER 16/; and (ii) the latter. which,
along with self-generated savlngs, would be a source of funds to
the grass-roots institutions.
(Footnote Continued)
including elected representatives, higher level civil servants and
representatives of the private sector.
16/ Here an as yet unresolved question arises as to whether the Fonds
loans would be rediscouncable with the BEAC. Ultimately they probably
should not be if Cameroon's financial system is to develop as it
ought.
CHAPTER I
PUBLIC RESOURCE MOBILIZATION AND ASSET MANAGEMENT
A. Introduction
1.1 The ability of Cameroon's government to mobilize the ample
resources evailable for public--and indirectly, private--investments
through its budget has been closely linked to its-status as an oil
exporter. However, unlike many developing countries, whether oil-
exporting or not, Cameroon was able to finance virtually all of its public
investments with relatively little recourse to foreign borrowing even
before the oil revenue boom at the beginning of the eighties. As a result,
its current debt-service ratio is below 10Z. While the growth in oil
revenues was accompanied by a substantial upsurge in the public investment
program in 1981, the Government has nonetheless managed to run an overall
budget surplus for most years since the onset of oil exports in 1979. This
basically sound position, coupled with conservative budget management
policies, would have brought Cameroon relatively comfortably through the
next ten years had the sudden drop in oil prices not intervened. A
corollary of the new situation is th-t the Government, and its new Caisse
Autonome d'Amortissement, will have to manage carefully its dwindling
public savings, introducing new fiscal policies to offset the expected
sharp declines in oil revenues, and developing a new borrowing strategy
consonant with the new revenue situation. This matter will be addressed at
length in a forthcoming CEM and will not be further treated here.
B. The Mechanics of Public Resource Mobilization
L.2 Cameroon's public finances are dominated by the ex*rabudgetary
account ("Compte hors budget": CHB) through which roughly 15-20% of total
budget revenues have been recently channeled, and which is directly managed
by the Presidency. While the existence of the CHB preceded the onset of
revenue flows from the oil sector, it is nonetheless the channel by which
the bulk of oil revenues enter Into the expenditure stream. The CHB itself
is, in effect, a transit account outside the regular budget into which oil
revenues are paid as they are believed to be required to finance certain
types of expenditure, mainly Investments, which account for nearly 802 of
total uses of these revenues. Particularly since these expenditures bear
no necessary relationship to the Plan, they have a certain ad hoc quality
despite the fact that they finance about 502 of public capital
expenditures. The major source of CHB revenues--there are some minor
exceptions--is the earnings of the National Hydrocarbon Corporation
(Sociftg Nationale des Hydrocarbures: SNH), the Government's shareholding
arm in the three petroleum companies now active in Cameroon, and with which
it has production-sharing agreements. It is these earnings which are paid
into the CHB accounts as required, i.e., in conformity with the desires of
the Presidency.
1.3 Accumulated (unrepatriated) earnings of SNH are strictly confi-
dential and for the most part appear to be held as foreign assets; as sucL,
-2'-
they do not enter into Cameroon's banking system or its formally reported
foreign exchange reserves. The amounts of the resources in question have
been kept secret in order to dampen the ardor of domestic spending
constituencies; since the revenues Involved are assumed to be temporary,
the Government feared that making public the amounts in question would give
rise to expectations which would raise expenditures to levels unsustainable
in tne post-oil era. Assuming no transfers from SNH to the CHB in 1980 and
1981 kfor which no data are avsilable) total accumulations of unrepatriated
oil revenues were probably somewhat less than CFAF 150 billion, or roughly
$350 million.
C. Planning and the Extra-budgetary Accounts
1.4 TO a considerable extent, the ad hoc quality of CHB management
clearly impedes the effective management of aggregate surpluses, whether
directly budgetized, transferred to the budget via the CHB, or maintained
by the SNH as unrepatriated overseas balances. Not only is it nearly
impossible under the CHB regime to make a reasonable estimate of total
resources available to distribute between recurrent and investment
expenditures (since the total volume of resources expected to be available
can only be guessed at by the relevant decision makers), but the planning
process itself is essentially weakened.
1.5 The non-programmability of CHB resources is, if anything,
aggravated by the fact that externally-financed investments are themselves
not programmed together wich the (non-CHB) domestically-financed public
investment budget. Thus there are in effect three investment budgets: (i)
domestically-financed (36% of the total in 1984); (ii) CHB-financed (42% of
the total, and managed by the Presidency); arA (iii) externally-financed
(22%) which are separately programmed and developed, essentially by the
Ministry of Finance. This means that carefully drawn up plans based upon
available factors of production and integrating the intersectoral
relationships embodied in models now applied by the Ministry of Planning
can be undermined by ad hoc decisions taken outside the nexus of the Plan
itself.
1.6 Moreover, as is the case in many other developing countries,
Cameroon's institutional structure is poorly adapted to strike an
appropriate balance between capital expenditures financed out of public (or
foreign) savings and the recurrent expenditures required, among others, to
maintain the capital infrastructures financed by these resources.
Thus--and again it is a commonplace among developing countries (and not
only those)-that the use of public resources may not be as efficient as
might be the case because there is no built-in incentive, such as the need
to maximize profits on borrowed resources, which will ensure the
appropriate maintenance of productive capital stock. This suggests that
the country striving to mobilize domestic resources should make a special
effort (a) to ensure that public expenditures are well-planned; and (b) to
ascertain that the mix between current and capital expenditures Is
sufficient to maintain the country's capital stock. Current procedures
based upon the use of the COB, particularly given the lack of any rolling
-3-
plan incorporating the recurrent expenditure implications of public
investments, militate against the effective execution of both points. This
is compounded by separate programing procedures for externally-financed
investments.
D. Government Savings Performance
1,7 In sum, while the CHB process appears to introduce dyafunctional
elements onto the overall budget process, the GoverDment's general perfor-
mance in the area of public resource mobilization has been relatively good.
Moreover, while there was a considerable upsurge In public investments
early in the period to absorb these resources, the Government still managed
to run overall surpluses, and at the same time applied considerable modera-
tion, following the initial upsurge, in its public investments policy.
Although recurrent expenditures have shown a tendency to outstrip GDP
growth, central government expenditures-were 21% of GDP in 1984, which
compares very favorably with the 30.4% average for oil-exporting developing
countries as well as with the 25.5% average for middle-income developing
countries. While there is room for individual economies--the area of
public enterprises comes to mind--it is in fact difficult to isolate
obvious areas where the Government should be reducing expenditures,
particularly in the area of public investments.
E. Caisse Autonome d'Amortissement
1.8 The Caisse Autonome d'Amortissement (CAA) is a newly created
institution in Cameroon which has its counterparts in many other franco-
phone African countries. It was established by decree on August 28, 1985,
with the objective, among others, of expanding the functions of the Public
Debt Directorate in the Ministry of Finance. This latter has been respon-
sible for maintaining public debt accounts pertaining to disbursements and
debt service payments, for public domestic and foreign debt. Record-
keeping has been poor, although some progress has been made recently. The
conversion of the Directorate into a CAA will give the new organization
greater independence in overall debt management, particularly as the CAA
will, as an independent public establishment, have its own budget. The
latter may be financed by its own public borrowings, direct budgetary
allocations from the Treasury, and by other levies and taxes, as yet
undefined. From these resources it is to ensure debt service payments as
required. It will also be respor3dible for articulating a borrowing
strategy by the Government, as well as carrying out other pertinent studies
(particularly with respect to borrowing guarantees by the Government) and
may even itself be involved in the financing of priority development
projects. Perhaps most importantly in this coatext--the relevant decree is
not entirely explicit-it may be involved in the management of Treasury
assets. In effect, this would involve a duplication of effort with respect
to what is essentially a Treasury function (although at present not very
well carried out)--the management of government finances. However, it is
not entirtly inappropriate that the CAA be called upon to carry out certain
asset management functions. In particular, this would permit the fusion of
the functions of managing both debt and financial assets, and so permit the
-4-
articulation of an overall borrowing strategy in light of the probable
Government surpluses. Moreover, its status as an autonomous public entity
(rather than a Department of the Ministry of Finance) will permit it
greater flexibility in using greatly needed outside assistance in carrying
out this particular task.
F. Public Liquidity: Quasi-governmental Bodies
1,9 With the Central government having been in a continuing state of
(excess) liquidity, borrowings from the domestic market (as opposed to
foreign borrowings financing domestic Investments) 1/ have been limited.
Thus the Government's Impact on the domestic financial market has been via
its surpluses, rather than via deficit financing found in most other modern
states. While this has to a certain extent impeded the development of a
financial system based upon an array of public debt instruments, it has
also meant that many of the proolems witnessed in-other countries of the
franc zone have been avoided in Cameroon. In these countries, more fre-
quently member countries of the West African franc zone (UMOA), restric-
tions on domestic borrowing by governments have brought unsustainable
external debt burdens and a basic corruption of financial systems. This
has occurred as governments incur large payments arrears (which ultimately
must be financed by the domestic banking system), are forced to plunder
postal savings and checking systems, and to shift essentially governmental
functions--in particular, subsidy payments-to quasi-governmental bodies
and public enterprises. The latter, not facing the same borrowing
restrictions as the central government, then proceed to overwhelm the
domestic banking sector under circumstances where the interest-rate
rationing function is irrelevant, since interest charges are simply
compounded without payment. The result is a virtual preemption by the
state of private financial circuits.
1.10 No such problems have been witnessed in Cameroon. Not only have
public surpluses supported the liquidity of the domestic financial system,
but the major quasi-governmental bodies are themselves in considerable
surplus, the proceeds of which may be deposited with the Treasury or with
domestic financial institutions. Although there is a number of such bodies
1/ While disbursements from net new foreign financing have been larger
than amortization payments (interest-payments are already included in
the budget projections), these have, in the aggregate, been rather
small. Moreover, our current estimates suggest that the increases in
CFAF-denominated debt service payments arising from these new
borrowings will be offset by the decline in the dollar, the fact that
some loans are being prepaid, and the apparent associated stretching
out of grace periods. Thus the Government's surplus figures would not
change much if the foreign sector were explicitly taken into account.
Given the relatively minor magnitude of the amounts in question this
was not felt to be cost-effective.
-5-
which in one way or another collect taxes, earmarked or otherwise, the most
important among them are the commodities marketing board (Office ilational
de la Commercialisation de Froduits de Base: ONCPB) and the social
insurance fund (Caisse Nationals de Pr4voyance Sociale: CNPS). 2/ SNH
might be considered to be In the same category, but we have considered it
as an essential part of the Central government whose resources should be
managed by the Treasury, or eventually the CAA. The municipalities,
themselves generally in surplus in the aggregate, are In the same category.
1.11 The ONCPB is perhaps the most important of the above.
Established in 1978, it has two principal functions; price stabilization
and marketing of export crops. Although under the control of the Ministry
of Commerce and Industry, ONCPB has legal and financilu autonomy. Its
operating revenues come from two sources, levies on sales made by
authorized private traders and the proceeds of sales made directly by
ONCPB's agents. 31 These are, in essence, export taxes, the burden of
which is borne by the producers. Net revenues after operating expenses are
split evenly between two reseTve funds (which are distinguished for
accounting reasons only; the actual funds are merged for purposes of asset
management).
1.12 The first of these ONCPB funds Is the price stabilization fund;
the second is the "free" reserve fund, which is used to finance investments
and subsidies in the agricultural/rural developwent sector. This mandate
is conceived broadly; apart from equity investments in tha ailing public
enterprise sector not very directly associated with agriculture totalling
CFAF 14.7 billion, the fund is also used to finance certain public invest-
ments not inscribed in the Plan. Even with such expenditures, considerable
liquidity has been built up, so that ONCPB had, as of June 30, 1985, a
total of CFAF 98.5 billion of accumulated liquid assets. Despite its legal
obligation to place the total of its liquid resources with the Treasury, as
of that date, ONCPB maintained CFAF 60 billion of its liquid assets as term
deposits with commercial banks, apparently because it earns no interest on
its Treasury accounts.
2/ To some extent this selection of institutions is quite arbitrary.
Although the CNPS is more of a non-bank financial institution it is
included here because its accounts are normally consolidated with the
Central government accounts. It could as easily have been included in
the discussion on capital markets, where it plays (or should play) an
important role. In this It does not much differ from the national
housing scheme (Credit Foncier du Cameroon), the main source of whose
funds is also earmarked taxes. However, its accounts would not
normally be consolidated with the Central government accounts.
3/ The different systems result from a merger of anglophone (using direct
agents) and francophone (private traders) systems.
6
1.13 Theie are a number of slements to be noted here. lhe first is
that ONCPB is rzaking a substantial contribution to public sector liquidity.
Thle. of course, essentially flows to the domestic banking system which
itself is ex-cessively liquid, thereby giving rise, among other things, to
capital oUtflkwt. Second, the price stabilization fund does not exist as
such; apparently since the establishment of ONCPB there have been no draw
downs required on reserves since domestic prices are left far below world
parity levels. The Government Is on record as wishing to transfer public
savings as invesetible resources to the deserviag private sector, i.e., SMEs
and the rural agricultural sector. One way in which this transfer might
most easily be achieved is through some reduction in current agricultural
taxation; i.e., through the raising of producer prices. Third, any
teaningful price stabilization fund should be "sterilized" via deposits
with the Central Bank, and not with the commercial banking system.
1.14 Once ONCPB resources have financed outlays associated with
agricultural development. the residuals should be used to contribute to the
overall development of the financial sector, including the term-
transformation of resources (which the current commercial bank deposit
structure does not permit) and, ultimately financial institutions which
serve priority sectors. This might best be carried out through a new non-
bank financial intermediary institution (discussed further below) which
would also receive resources from other collectors of savings, most notably
the CNPS, but including other institutions, such as the National Savings
Bank, the postal checking system, and the Housing Bank as well. (Details of
this institution are provided in Chapter V). Thus ONCPB's residual assets
would no longer flow to the Treasury, but would be assigned to the new
institution.
1.15 Unlike the ONCPB, the CNPS is an institution which collects long-
term resources whose Inflows and outflows are easily predictable, making it
a valuable resource in the transfer of investible surpluses to the domestic
tinancial system. particularly with respect to longer-term funds which
might eventually support the development of a capital market, now virtually
nonexistent in Cameroon. 41 At present these resources are "wasted" via a
CFAF 38.5 billion term loan to the Government for on-lending to the public
enterprise sector (there is no obligation for CNPS to place its resources
with the Treasury) and CFAF 70.6 billion in sight and time-deposits with
the commercial banking sector. The amounts in question represent the
virtual totality of CNPS's investible resources, and in effect contribute
virtually nothing to the development of a real capital market.
4/ While it is true that CNPS provided equity funding of roughly CFAF 4.5
billion to the public enterprise sector (mainly CELLUCAM, CAMSUCO),
CFAF 3.8 billion has had to be written off.
-7-
G. Conclusions and Recommendations
1.16 The Cameroonian government has performed well in generating
public savings and In keeping public investments sufficiently in bounds to
generate an increasing overall surplus. Should some satisfactory resolu-
tion to the public enterprise problem be brought about, these surpluses
should eventually be such as to permit the absorption of the decline in oil
revenues at the end of the period without major difficulties.
1.17 In line with its stated interest, the Government should begin to
develop mechanisms for the orderly and efficient transfer of investible
public surpluses to the private sector. As suggested, some of this might
best be carried out through well-targeted tax reductions, particularly with
respect to financial instruments (see Chapter II for further discussion of
this question) and agriculture producer prices. Apart from any such fiscal
measures, however, the Treasury (or the new CAA) needs to define a consis-
tent financial asset management strategy which includes SN! resources (as
well as those from external financing) particularly since a problem of the
Government's budget management system involves the non-programmed usage of
SNH-financed extra-budgetary accounts. Indeed, all three separate invest-
ment budgets should be amalgamated, at least on an analytical basis (as
opposed to changing the legal accounting framework), to permit the
establishment of a forward rolling plan including recurrent as well as
capital expenditures. Simultaneously, the Government needs to consider
centralizing the management of non-Treasury resources from the ONCPB, the
CNPS and other collectors of savings into a new non-bank financial
intermediary, which would utilize these funds for the development of the
financial sector, and particularly for the term-transformation of
resources, as well as other functions which will be described at greater
length in Chapter V.
-8-
CHAPTER II
PRIVATE RESOURCE MOBILIZATION AND FINANCIAL INTERMEDIATION
A. Introduction
2.1 We have seen that the Cameroonian system is reasonably effective
in the mobilization of public resources through the budget; where it is
less effective is in the management of such resources. As indicated in
Chapter I, a large part of public savings is devoted to public investments,
and with the programming of these investments being poorly Integrated as
between various sub-budgets, there is considerable likelihood that t-he
profile of these investments will be far from ideal. 1/ Furthermore, the
management of that share of public savings which is not devoted to public
capital expenditures leaves much to be desired. First, beyond their being
utilized to shore up a nearly bankrupt banking system there appears to be
little consistent portfolio strategy for the utilization of public finan-
cial surpluses. Second, with these surpluses being divided between Trea-
sury and SNH, there is little possibility of having an Integrated portfolio
strategy; Treasury officials charged with portfolio management are left in
the dark about SNH resources and their deployment. Finally, the surpluses
of the quasi-government agencies, principally ONCPB and CNPS, play
virtually no role in the development of the Cameroonian financial system:
they exercise little or no function in encouraging financial deepening in
the unusually "shallow" system. Thus they contribute little or nothing to
financial intermediation.
2.2 This chapter provides an overview of the concept of financial
intermediation and its empirical manifestations in Cameroon both as com-
pared with other developing countries and In terms of Cameroon's own
financial institutions. All indicators suggest an unusually low level of
sophistication in Cameroon's financial intermediation svstem, particularly
compared with its relatively high per capita income. A technical annex
sets forth the results of quantitative analysis indicating that Cameroon's
interest rate structure, both absolutely (in real terms) and in comparison
with international rates, has a statistically significant bearing upon the
level of financial intermediation in that country. International interest
rate levels (i.e., those of the Paris financial market) are especially
Important given the high degree of openness which characterizes the
Cameroonian economy.
1/ In all fairness, however, any such conclusion should be supported by a
careful public investment review: as a practical matter, the
Cameroonian public investment budget does not appear to be encumbered
by obvious "white elephants."
2.3 Cameroon, as a member of the southern tier franc zone (the BEAC,
discussed at greater length in Chapter IV) to subject to a number of the
same influences as its fellow member countries of the zone, and it is
possible that a number of the same conclusions found below would also apply
to the other members of BEAC. This Report, however, necessarily confines
itself to Cameroon alone; in any event, there is no way of knowing whether
the externally-imposed institutions of the BEAC will react in identical
ways with the internal institutionis and economic configurations of each
individual member country. Indeed, the likelihood is that they will not.
B. Financial Intermediation
2.4 The relationship between private financial resource mobilization
and financial intermediation is a critical one. If the level of financial
intermediation (or degree of "financial deepening") is low, this will tend
to inhibit the mobilization of private resources. Moreover, for a given
level of private financial resource mobilization, if the intermediation
system is inadequate, this will imply that the transformation of the
financial resources in question will be only imperfectly translated into
economic growth. Other things being equal, the lower the level of finan-
cial intermediation, the greater the Impediment to economic growth: limited
financial savings will rarely be channeled to their most productive uses.
2.5 It is important at this point to define some of the above con-
cepts. By financial resource mobilization we mean basically financial
savings as distinguished from "real" savings, or the abstention from
consumption in the national accounts sense. The distinction is made:
(a) because real savings are generally inelastic to the relevant policy
variables (such as interest rate variations); and (b) because if private
savings cannot be captured by the financial system they cannot easily be
mobilized for investments. The mobilization of financial resources, on the
other hand, is much more susceptible to changes in policy instruments. As
suggested, financial intermediation is a notion complementary to financial
resource mobilization which sheds light on the efficiency of the financial
system. Often encapsulated by the summary measure M2/GDP, 2/ the level of
financial intermediation reflects: (a) the range of financial instruments
available to savers wishing to diversify their portfolios with respect to
rates of return, risk and maturity structure; and (b) the related set of
2/ M2 is defined as currency in banks, demand deposits and time and
savings deposits. This ratio is designed throughout the discussion
to exclude Government (Treasury) deposits, mainly since such deposits
will bear no relationship to interest rates or other relevant
variables (such as income or number of banks) and their inclusion
would tend to distort the relationships being studied. While there
are some unresolved theoretical uncertainties concerning Treasury
balances in oil-rich countries, Cameroon's M2/GDP ratio was at low
levels even before the oil boom in the late 1970s.
- 10 -
financial packages available to investors who seek investible resources
with different mixes of equity and debt, different maturities in the debt
structure and different rates of interest associated with varying degrees
of risk.
2.6 All too often in developing countries, including in Francophone
West Africa, the financial system offers the saver little more than bank
deposits for the most part paying negative real interest rates;
simultaneously, few borrowers have more than limited access to equity
financing or term loans. Moreover, access to the system is frequently
limited by credit rationing associated with too low interest rates. In
such a system the level of financial intermediation ratio is likely to be.
low, and the system "financially repressed." Savers will often opt to hold
"treal" assets, e.g., real estate, livestock, gold, etc., in-preference to
financial assets, 3/ and prospective investors will frequently find
investible resources from the formal financial system scarce at any
interest rate. On the other hand, higher intermediation levels will be
found where the system comprises a number of institutions which would
ultimately work to pool risks which would not be acceptable to the average
depositor, transform maturities and offer different portfolio character-
istics which would be attractive both to potential borrowers and potential
lenders. The more "layering" of financial institutions this implies, the
greater the amount of financial resources (K2) required to sustain this
layering, relative to GDP.
C. The Adequacy of the Cameroonian Financial System
2.7 Available evidence suggests that In the case of Cameroon finan-
cial deepening in the economy is less than what it should be, particularly
for the level of its per capita GDP. Thus the M2/GDP ratio is, as
Table 2.1 shows, substantially below ratios for African countries of
similar or lower per capita incomes, and even more so for other LDC's.
Thus the Cameroonian level of 0.19 was a full one-third below the average
for selected African countries of roughly similar per capita levels (or,
like Kenya, economic makeup), and even lower as compared with the other
LDCs shown. The comparison with other members of the franc zone (UMOA) is
particularly instructive: M2/GDP for that zone as a whole was 25.1% in
1983; in that year, Cameroon's ratio was lower than that of all UMOA
countries save one, which suggests that the UMOA system may be relatively
3/ Real assets in this sense of the word will include holdings of net
foreign assets (which are not technically available to domestic
investors through the intermediation system) and, to a certain
extent, asset holdilgs In the tontines. This is discussed at greater
length below.
- il -
less conducive to weaknesses in financial intermediation than the BEAC
system. 4/
Table 2.1 C(HPARXTIVE WBASUtES OF PINAWCIAL DEVELOPHEIT. 1983
Countxy GNP/capita 2P LB/GDP QMPGDP
Cameroon 820 0.19 0.15 0.09
Other Africa
Kenya 340 0.27 0.22 0.10
Nigeria 770 0.37 /a 0.26 /a 0. 15 /a
C8te d'Ivoire 710 0.26 0.17 0.08
Senegal 440 0.31 lb 0.21 /b 0.08 lb
Average African Sample 565 0.30 0.22 0.10
Other LDCs
Morocco 760 0.44 /a 0.29 /a 0.10 /a
Thailand 820 0.48 0.42 0.39
Indonesia 560 0.20 0.16 0.10
Philippines 760 0.25 0.20 0.17
Average Others 725 0.34 0.27 0.19
Overall Average 645 0.32 0.24 0.14
/a 1982 data.
7 1981 data.
Source: World Development Report, IFS, and Bank staff estimates. LB and QM refer to bank
liabilities and quasi-money, respectively.
2.8 A similar picture is seen with respect to bank liabilities
relative to GDP. This figure is instructive because, being exclusive of
currency balances, it is more clearly associated with the use of the
banking system, through which intermediation must ultimately be carried
out. Here, with the Cameroon ratio being .15 (as compared with other
Africa at .22) this indicator of financial deepening is again more than
one-third below that of its African neighbors.
2.9 Since Cameroon's economic performance has basically been of very
high quality, particularly with respect to its growth performance, which
4/ This suggests that a comparative study of the BEAC and UMOA systems
may well be desirable with respect to the impact of the two different
franc zone systems on the financial characteristics of their member
countries, particularly since the UMOA system is in many ways more
advanced than the BEAC system. Such a study, however, is beyond the
scope of this Report.
- 1? -
was good even in the pre-oil period, it Is not particularly easy to suggest
that it should be doing better in this respect, especially since some of
the poorer performers (i.e., Senegal or Nigeria) have financial intermedia-
tion levels considerably in excess of that of Cameroon. Or since a better
performer, Indonesia, shows indicators closer to those of Cameroon.
However this may be, there is considerable empirical evidence which sug-
gests that relatively low level of sophistication of the Cameroonian system
may well work as a constraint to growth in the years to come. Sf Before we
consider the institutional failures of the Cameroonian financial system
which underlie or point up the low level of financial deepening it is
useful to examine some of those elements which are thought to bring about
the institutional weaknesses in question.
Table 2.2 : Cameroon: Real Interest Rates, 1975-82
Ex-post
Real Ex-ante Ex-post
Deposit Real Deposit Real Lending
Rate /a Rate /b Rate Ic
1975 -7.2 -2.4 -2.4
1976 -3.5 -2.8 0.8
1977 -7.2 -3.3 -3.4
1978 -5.2 -4.3 -1.4
1979 0.1 -5.0 3.9
1980 -2.1 -5.2 2.9
1981 -4.5 -5.5 -0.4
1982 -7.9 -6.3 -3.4
/a The nominal deposit rate used here is the average on different types of deposits, and
calculations of the real rate are based upon current inf"ation rates.
/b Ex-ante rates are expected inflation rates estimated from a model where
agents form their expectations on the 4oasis of the current CPI and
inflation in the two preceding periods.
/c The nominal lending rate underlying these calculations is defined as the rate on
medium-term ordinary non-rediscountable loans. Current inflation rates are used
for the calculations.
Source: IFS, MOF, and BEAC.
2.10 Analysis of financial intermediation puts considerable emphasis
on the behavior of real interest rates. These have (see Table 2.2) been
for the most part negative in Cameroon. Concern has been expressed in many
quarters that such interest rates discourage real savings in the national
accounts sense of consumption foregone; obviously this would simultaneously
tend to discourage the use of the financial system, and thereby negatively
affect financial deepening, as well. However, the empirical evidence of
such a relationship is weak, and for Cameroon no statistical support for it
was found; analysis showed real savings to be primarily a function of
income, as suggested by Keynes. This being said, a more real concern is
5/ Cf. Shaw and McUnnon (1973).
- 13 -
that low or negative real rates, while not necessarily discouraglng real
savings for the relevant range of rates, may tend to encourage a shift in
savings from financial instruments to real assets. In the latter case, the
associated "flight from the financial system" will inhibit the access of
deficit units (net investors) to surplus units (net savers) and so under-
mine the efficiency of the resource allocation system.
2.11 A critical element in the equation, for an open economy such as
Cameroon, is foreign interest rates. With a fixed exchange rate system
ruling out exchange risks, and with capital movements relatively free-both
characteristics of the franc zone system--capital flows are likely to be
responsive to even relatively minor disparaties in interest rates. To the
degree that this Is the case (and assuming that domestic rates are lower
than foreign rates, almost inevitably the case in Cameroon) foreign assets
will be much like real assets in that they will be basically inaccessible
to domestic borrowers& This will be shown by a low level of financial
intermediation.
2.12 Financial deepening-or lack thereof-is also generally thought
to be associated with institutional factors, foremost among which is the
accessibility of branch banks or other types of savings outlets; obviously
the presence or absence of these will have much to do with the holding of
bank or savings deposits.
2.13 Empirical evidence (see annex to this Chapter) shows that there
Is indeed a strong correlation between financial deepening (as measured
both by M2 and bank liabilities relative to GDP) and the above phenomena.
Particularly important were real interest rates, both domestic and interna-
tional (Paris), where both nominal rates were deflated by the Cameroonian
Inflation rate; for a Cameroonian saver operating under a fixed exchange
rate system the French inflation rate is basically irrelevant. Summarizing
the results, we find that a one percentage point Increase in the real
interest rate in Cameroon would lead to a 0.9 point increase In the K2/GDP
ratio. Conversely, and other things being equal, a one percentage point
increase in real foreign rates would lead to an identical decrease in the
M2/GDP ratio in Cameroon. These findings are of considerable importance
since they suggest that not only do real rates in general have much to do
with financial savings and the strength of the financial system, but the
differential between these rates may be of equal importance. Assuming that
the differential is in Paris's favor, this will tend to inhibit the
deepening of the financial system and its ability to intermediate between
domestic savers and investors. Should, however, the differential between
Paris and Cameroon be in Cameroon's favor, quantitative evidence (see
Chapter annex) shows that, by encouraging capital inflows, this would tend
to lead to real exchange rate appreciation.
2.14 The latter finding is instructive since it has some unexpected
policy implications. That is, to the extent that the establishment of
positive real rates in Cameroon brought nominal rates in Cameroon above
nominal Paris rates, this would tend to encourage capital inflows and
domestic inflation (and real exchange rate appreciation). This suggests
- 14 -
that, short of reducing taxes on financial instruments (discussed below), a
policy adjusting interest rates (rather than, say, inflation itself) to
keep them at real positive levels, may be both costly and self-defeating.
2.15 The importance of the rate differential between Paris and
Cameroon with respect to financial deepening--given the openness of the
Cameroonian economy toward that of France-strongly suggests the need to
align Cameroonian rates on Paris rates. Apart from the fact that this
would tend to Improve financial deepening, it also has important implica-
tions for monetary policy, and will be discussed further in that context.
2.16 Although having little to do with interest rates, our quanti-
tative work shows that the availability of bank branches has a real impact
on financial deepening (see chapter annex). Table 2.3 indicates that
Cameroon is relatively underdeveloped, as compared with other African
countries of or near its income class, with respect to the number of bank
branches per 10,000 persons. Although the sample is limited because of a
lack of data, what was available shows that with a per capita income
averaging 43% more than the comparator countries, the number of bank
branches per 10,000 was 17% lower than the average.
Table 2.3 : Number of Bank Branches per 10,000 of the Population
(1977 data)
Permanent Bank
Country GNP/capita Branches/10.000 persons
Cameroon 340 0.149
Ghana 380 O. 25
Kenya 270 0.209
Tanzania 190 0.188
Somalia 110 0.087
Average 238 0.172
Source: Ministry of Finance, World Development Report and [warteng (1982).
D. The Institutional Perspective on Limits to Financial
Deepening
2.17 It is useful to consider the somewhat theoretical relationship
between financial deepening and "real interest rates" from a more
institutional perspective in order to understand better how financial
deepening has been impeded in Cameroon. Following that, we will examine
how efficient the system itself is; that is, the degree to which the
system--deep or shallow-delivers financial services effectively.
- 15 -
1. Bank Margins
2.18 The theoretical perspective on financial intermediation in
Cameroon is pointed up by specifIc institutional elements. While low or
negative real interest rates may discourage the accumulation of financial
instruments, margin limitations on bauk lending may bring about the same
problems. Thus if a bank using deposits to finance its non-rediscountable
banking operations 6/ calculates the cost of funds at the maximum rate on
six-month deposits of 12 percent, it earns margins of between -2.5 percent
(for medium term privileged loans) and +1.75 percent (medium-term
non-privileged loans). Apart from the fact that this will tend to
discourage loans to the so-called privileged sectors (e.g., small- and
medium-scale enterprise) it will also discourage commercial banks from
seeking deposits except at rates very likely to be negative In real terms,
so that there is a direct disincentive for banks to mobilize savings. This
will be reinforced by the ability of banks-under the logic of the franc
zone system to use rediscount facilities, in which case they will earn
margins of 2.25 and 3.25 percent on the two types of loans, respectively.
While this may work to orient lending to rediscountable uses or borrowers,
at the same time it will restrict the capability of the system as a whole
to mobilize resources. In any event, a margin of 2.25 percent will rarely
be sufficient to cover all but the most risk-free of privileged lending
(e.g., for agricultural export credits, which may well have the effect of
displacing foreign lending for the same purpose), and it seems clear that
this margin policy, in the guise of assisting socially-favored sectors, has
quite the opposite effect.
2. The Paris/International Market
2.19 It has been suggested that one reason for the relatively low
degree of financial deepening in Cameroon is the existence of the easily
accessible Paris money and capital market. 71 Accordingly, domestic
institutions have not developed because given easy access to Paris, this
has been unnecessary. There is some empirical evidence ror this from the
6/ The concept of rediscountability will be discussed more extensively
in Chapter IV, but essentially rediscountable credit includes most
short- and medium-term loans except consumer loans and long-term
loans. However, qualitative criteria relating to financial soundness
of the operation as well as potential profitability, and quantitative
criteria (via determinations as to the rediscountability of the
asset) are also applied, and their outcome cannot easily be known in
advance.
7/ It must, however, be noted that the Cote d'Ivoire and Senegal benefit
from the same conditions of access to this market, yet their
financial deepening position is more advanced than that of Cameroon,
a country of higher per capita GDP.
- 16 -
1979 census on Investments in manufacturing. This shows that for firms in
the modern sector having total annual sales of more than CFAF 5 million'
(see appendix Table 16), somewhat over 60X of total equity capital had its
origins with foreign investors, almost entirely private. With government
capital financing 17% of the remainder, this left only 23% to be supplied
by private domestic investors. This does not include debt, but since there
is practically no formal long-term debt in the Cameroonian economy at
present, (although doubtlessly considerable short-term debt is in fact
rolled over), any such debt must come from abroad, most probably via parent
companies.
2.20 Thus in considerable measure capital financing must come from
overseas or the Government (whose own policies supporting domestic enter-
prise have been little short of disastrous and which in any event has since
1983 supplied little new investment capital). Those other institutions
capable of jointly playing the role of capital market (e.g., CNPS) have,
for the most part practiced negative term transformation and deposited
assets essentially associated with long-term liabilities In commercial
banks, where interest rate differentials have tended to draw these
resources back to overseas markets. Indeed, the open financial system of
the BEAC zone works in such a way as to encourage banks themselves to use
foreign financial end capital markets for intermediation and term-
transformation, thereby reducing or discouraging local lntermediation.
Thus over the six-year period between 1979 and 1985 average gross foreign
assets of the commercial banks, at CFAP 45.0 billion, were roughly equal to
the banks' medium and long-term borrowings (i.e., debt) of CFAF 42.3
billion over the period. (However, with increasing bank liquidity this
relationship has shifted to roughly three-to-one in favor of gross foreign
assets.)
3. The Tontines
2.21 The tontines, essentially social or clan affinity groups
(averaging perhaps 15-20 members) which play the role of informal credit
cooperatives, are responsible for a substantial degree of credit creation
in the Cameroonian economy. 8/ Interest rates tend to be quite high and
8/ Tontines are the standard form of credit creation in the West and
Central African economies and occur also in parts of Southeast Asia.
The simplest form of operation is that by which the members make
monthly payments into a revolving fund, the totality of which is
withdrawn by one of the members by prior agreement each month, each
according to his turn. No formal interest payments are involved.
Other arrangements involve bidding for the (generally monthly) "pot,"
where the winner leaves in the pot the amount of the winning bid,
which becomes a part of the new pot. The borrower may then no longer
bid on future pots and in effect pays back the loan by continuing to
(Footnote Continued)
- 17 -
maturities practically always under one year. While these institutions
play an extremely Important role in the Cameroonian economy, they are not
directly connected with either the formal banking sector or with one
another; thus they are highly segmented. Not operating through the formal
banking sector they do not directly influence money supply (so that their
impact is o4 velocity rather than morey itself). Even though their role is
in many ways a useful one because the formal sector does not ordinarily
supply the financial requirements of tontine members, It has tended to
represent an impediment to the financial deepening of the Cameroonian
economy. However, the importance of these institutions may also be
regarded as symptomatic of the relative underdevelopment of the formal
system, and will most likely dimdnish in importance as the sophistication
of the financial system grows..
4. Lack of a Non-Bank Financial Intermediary
2.22 Particularly given the lack of project evaluation capabilities,
general banking, accounting and auditing skills, etc., in Cameroon (includ-
ing the effective retreat of the Cameroon Llevelopment Bank from the capital
market scene), there is no effectively functioning apparatus for term-
transformation or risk diversification in Cameroon. As seen above, most of
the important potential capital market institutions in Cameroon practice
effective negative term-transformation, particularly in the absence of a
non-bank intermediary which could accept deposit liabilities of all terms
from institutions such as ONCPB and transform them, in tandem with banking
institutions, into long-term debt, diversifying risk through this opera-
tion. Similarly, there is no secondary market in Cameroon to guarantee the
liquidity of primary s.zcurities and this also tends to limit the
development of the market for such financial instruments. The lack of an
institution performing these functions--common in other countries of
Cameroon's per capita income level-probably contributes considerably to
the measured shallowness of Cameroon's financial system. The introduction
of an institution of this nature (discussed in detail in Chapter V) would
very likely have a significant effect on strengthening Cameroon's financial
system.
(Footnote Continued)
contribute every month until each member has t ,rrowed at least once.
Since the amounts left in as discounts are combined to form new pots,
so that the number of months of a cycle will be fewer than the number
of participants; the last borrower may receive the pot in
considerably fewer than the months in the cycle. Those who make
their contributions In the first half of the cycle will be net
borrowers, those contributing in the last half will be savers, whose
interest payements for their savings are reflected in the shorter
number of months for which they are required to make payments.
- 18 -
5. Socifta Nationale d'Investissement (SNI)
2.23 The SNI was established In 1962 as a state holding company to
take equity shAres in Cameroonian enterprises thought to have difficulties
in access to capital despite their expected profitability (or because of
their social interest to the state). With the bulk of these enterprises in
SNI's portfolio being technically bankrupt, SNI is technically bankrupt as
well, having a negative net worth of CFAF 13,7 billion. However, because
it continues to receive the proceeds of "bons d'Xquipement" (issued at 4.5%
with five years maturity) 9I to which commercial banks a e~ obliged to sub-
scribe 10% of their total assets, it Is fitnacially quite liquid: because
the SNI has made no new investments since 1983, these assets are "recycled"
back to the commercial banks at a 10% deposit rate. Obviously reducing
overall rates of return to Investments, and given narrow margins,-this
means that banks can pay all the less on average deposits, thereby
inhibiting financial savings mobilization. In addition to this, the
negative term transformation Involved with the re-deposit of these
resources and the weakening of the commercial banks' maturity structure
which this engenders, overall fitancial intermediation suffers. We will
have considerably more to say on this subject below.
6. Taxes on Financial Instruments
2.24 Apart from the disguised tax which is represented by the bons
d'equipement, financial intermediation in Cameroon is subjected to--and
ultimately impeded by-two types of taxes: taxes on lending rates and taxes
on interest income. These taxes represent income to the Treasury, but
amount to less than 1% of its total tax revenues. Given the potential
damage to the intermediation system, these taxes can scarcely be justified.
2.25 Two taxes are imposed on borrowers: (a) the tax on the
distribution of credit (TDC); and (b) the turnover tax (imp6t sur le
chiffre d'affaires: ICAI). The former is set at one percentage point, and
is added to the lending rate, and the latter, also added to the lending
rate, is equal to 10.998% of that rate. These taxes increase the cost of
funds to investors, and represent an equivalent reduction in margins earned
by the banks (discouraging lending), or tending to reduce average deposit
rates paid (discouraging financial savings). Either way this works out
badly for the financial system. Thus for a med4um-term, ordinary, non-
rediscountable loan for which the bank receives 13.5% the borrower will pay
15.25%; yet the bank's margin will only be 1.75%, which is surely
insufficient to cover the cost of processing, particularly: (a) since
excessive term-transformation may put the bank at risk; (b) non-
rediscountable loans are probably somewhat riskier than rediscountable
loans; and (c) because 1.75% is considerably lower than the average margin
required by Cameroonian commercial banks. A removal of this tax (or its
9/ This was recently raised to 7.0%, however.
- 19-
replacement by an increased tax on bank profits) would permit banks to earn
acceptable margins (or increase average deposit rates) and thereby expand
lending where unfilled demand existed.
2.26 Savers are also heavily taxed, and all income from savings and
time deposits at commercial banks is subject to two taxes: (a) the "propor-
tional tax" on revenues earned on finarcial capital (la taxe proportionelle
sur le revenu des capitaux mobiliers: TPRCM) of 16.5%, which is retained at
source; and (b) the normal progressive income tax. Thus if a saver earning
12% on a six-month deposit is in the 33% bracket, he only receives a 6.7%
after-tax rate of return; this is currently negative in real terms and an
induceaent to return to the tontine, reversing financial deepening. The
elimination of the TPCRM would permit a rise of about 2 percentage points
in the after-tax return to the saver in question, which could obviously
stimulate financial savings and some strengthening of the financial system,
all at minimal cost to the Treasury.
E. The Efficiency of the Financial Intermediation System
2.27 We have seen that there are a number of institutional elements-
which tend tc limit financial deepening even given a low interest-rste
structure which both on a priori and empirical grounds are found to Inhibit
the development of the financial system. In addition, there are also
important weaknesses with respect to the efficiency of the system in
delivering financial services as it currently exists.
2.28 Foremost among these weaknesses is the insolvency, near-
insolvency, or outright bankruptcy of the Cameroonian commercial banking
system, caused, among others factors, by a substantial number of ill-ad-
vised loans. 10/ Total amounts of non-performing assets are said to amount
to about CFAF 120 billion, cr about seven times loss-reserves. There are
doubtlessly considerably more loans which are of dubious value. In any
event, it is clear that Cameroonian banks are badly undercapitalized and
that this has a strongly negative Impact on the efficiency and behavior of
the sector.
2.29 First, this undercapitalization has meant that only two of the
ten commercial banks in Cameroon are profitable, and these only marginally
so. This, in turn, has led to the Government's reducing all sight deposit
rates to zero in order to increase bank profitability (thereby, of course,
increasing financial repression). Second, it has meant that banks have
10/ It is often suggested that these loans, in large part made to
merchants in North Cameroon, were politically motivated. It is,
however, unlikely that there was any outright political coercion
forcing bankers to make these loans; at most, many may have hoped to
gain political favor by making them. It is universally agreed that
these loans are unrecoverable.
- 20 -
become much more risk-averse as potential losses have become far more
costly, compared with wealth (banks' remaining net capital resources), than
before. This appears to have encouraged banks to make loans only to the
most risk-free borrowers--e.g., expatriate firms-or to transfer funds
overseas, where banks' deposits have grown from CFAF 4.6 billion In March
1980 to CFAF 190 billion in March, 1985, probably with the tacit agreement
of the BEAC and even the Government. Thus despite government efforts, for
example, to encourage lending to the SME sectors, bank undercapitalization
works strongly against such loans (as do clearly inadequate margins
permitted the commercial banks for lending to this sector).
2.30 The Government has sought to compensate for this problem by
maintaling substantial deposits with the comercial banks. Together with
parastatal deposits, these now amount to about 50% of total deposits and
have thus supplied a considerable amount of liquidlty to the sector. So
much so, in fact, that some of this is recycled to overseas balances.
Moreover, since government deposits, essentially time deposits, are
remunerated at '0%, this means that there are relatively few loans where
margins are sufficient to make lending out of these deposits interesting,
especially in view of the fact that overseas placements are virtually risk
free, particularly as compared with domestic loans. However stable these
balances may be, they do not substitute for capital, so that banks remain,
if anything, excessively conservative in their domestic lending policies.
2 .31 The problems In the banking sector are compounde by the fact
that the Cameroonian banking structure is highly concentrated, with four of
the ten banks controlling 85% of total assets. With an oligopolistic
market structure, this means that the commercial banking sector must remain
subject to government regulation, at least until (a) the other banks gain a
greater degree of market power; and (b) the sector as a whole is adequately
recapitalized. Perhaps most Importantly, this suggests that changes in the
management of interest rates, while requiring some liberalization and
allgnment on international rates, cannot immediately lead to full depen-
dence upon the market for rate determination.
F. Conclusions and Recommendations
2.32 Evidence is conclusive that Cameroon's interest-rate structure
leads to financial repression: not only is this effect noted with respect
to real interest rate levels taken in Isolation (and thus encouraging the
accumulation of real, as opposed to financial assets), but also in
comparison with the Paris market. With the average divergence in rates
being so great (nearly five percentage points over the 1975-84 period),
this has led to financial savings flowing to Paris. While from a balance
of payments viewpoint the flows have been manageable, the differentials in
-21-
question have also constrained the development of the Cameroonian financial
system. 11/
2.33 For this reason alone, Cameroonian rates should be aligned with
rates on the Paris market, probably on a quarterly basis. 12/ Thus
interest-rates must be a good deal more flexible than before, and while the
flexibility here being urged would be required to limit speculation, it is
also desirable as a means of avoiding the macro-economic destabilization
which wide swings in the difference between domestic and Paris rates will
very likely lead to. Although rate alignment will be an important element
in improving domestic resource mobilization and financial deepening, as we
will see in Chapter IV, it will also be an important adjunct to policy
changes leading to an improvement in the management of monetary policy.
Thus it will be a pivotal feature of any financial sector program.
2.34 A number of institutional features Inhibiting the development of
the financial intermediation system were noted. One of these, the tontine
system, is for the most part outside the scope of policy changes, and this
will probably remain a permanent feature of the financial landscape.
However (and this will be developed in further detail in Chapter V), some
attempt to integrate aspects of this system with the formal financial
sector appear to be justified. This would be a step toward overcoming the
market segmentation noted and, to the extent feasible, would represent a
definite step in strengthening the Cameroonian financial system, particu-
larly with respect to its ability in delivering investible resources to
sectors which the Government wishes to favor. Moreover, an overriding
concern would seem to be the development of a new, non-bank financial
intermediary, now conspicuously lacking in Cameroon, which might perform
term-transformation (or reverse the tendency toward negative term-
transformation) and perform a greater degree of risk diversification and
secondary market support for new or existing financial instruments.
2.35 One of the most promising possibilities for Improving financial
deepening is the adjustment of taxes on financial instruments: these tend
to discourage both financial savings and limit the efficacy of the system
in delivering available resources to where the return is greatest. They
reduce the rates of return to financial savings, encourage shifts to the
Paris market, reduce the incentives to banks to solicit deposits, represent
11/ To the extent that all Cameroonian investors had access to the Paris
market for loans (or "packages" of loans involving a range of
portfolio instruments) this would involve no welfare loss. Evidence
suggests, however, that access by Cameroonian investors is not equal
to that of expatriate-run enterprises.
12/ It should be noted that this can be achieved within the framework of
the BEAC system by adjusting margins over BEAC-set base rates, a
prerogrative of the Ministers of Finance.
- 22 -
a wedge between borrowing and lending rates (and thus distort the "true"
costs of capital). Moreover, to the extent that the difficulties inherent
in the Cameroonian financial system result from inadequate margins (per-
versely, mainly for socially desirable lending), these also inhibit bank
lending, at least domestically. Particularly in view of the fact that
their return to the Treasury is minimal, these taxes should be sharply
reduced or better, eliminated altogether.
- 23 -
ANNEX TO CHAPTER II
An Empirical Analysis of Financial
De.epenipg In Cameroon
1. This annex describes and explains the empirical analysis of private
financial savings in Cameroon as summarized In Chapter II. It to shown
through an econometric analysis of the determinants of private financial
savings that increases in permanent income, in the domestic real interest
rate or in the accessibility of commercial banks (and improvements in the
quality of services they offer) have a positive effect of financial
deepening. On the other hand, an increase in the differential between
domestic and foreign interest rates leads to a decrease in financial
deepenirg.
2. The analytical model, based upon work of Tobin (1982), McKinnon (1973)
and Shaw (1973), from which the estimated equations are derived is as
follows:
(1) J.-L(Y,d,f,r,x),
(2) C=C(y,d,f,r,x),
(3) F-F(Y,d,f,r,x,),
(4) V=V(Y,d,f,r,x),
(5) T-L+C+F+V,
(6) x-x(g,n),
where L, C, F, V, and T are the demands for the liabilities of domestic
banks, currency, foreign assets, real assets and total assets respectively.
All of these variables are expressed as ratios to GDP. The variables Y, d,
f, r, x, g, and n are permanent Income, the real Interest rate on domestic
deposits, the real return on foreign assets, the return on real assets, a
variable measuring the quality of services offered by domestic commercial
banks, the ratio of government to private deposits at commercial banks and
the number of commercial banks respectively. The system as defined implies
that the change in total assets (T) is equal to private savings in the
national accounts sense, i.e., non-consumption.
3. Following Tobin, the demand for any asset is a function of income, the
real rate of return on that asset and the rates of return on other alterna-
tive assets. An increase in income or in the real rate of return of an
asset is expected to increase the demand for that asset, while an increase
in the rates of return of its substitutes decreases the demand. It is also
assumed here that improvements in the quality of services offered to bank
customers will lead to an increase in the demand for domestic financial
assets. Equation (6) postulates that the quality of services offered by
commercial banks is a function of the number of banks operating In Cameroon
and of the relative importance of government deposits in their portfolio.
The rise in competition which can be associated with an increase in the
number of banks can be expected to lead to better services. The effect of
government deposits on the quality of services is ambiguous. By increasing
- 24 -
bank's liquidity and hence their ability to make loans, government deposits
exert a positive effect. On the other hand, if at the fixed margins banks
find further lending unprofitable, this increase in liquidity would reduce
their incentive to mobilize private deposits and thus have a negative
impact on financial development.
4. The impact of changes in these variables on total private savings,
however, is not as clear. For example, a rise in the return on domestic
financial assets will lead to an increase in L but also to a fall in C, V,
and F. Thus, the effect of such changes on T will be ambiguous. The same
is true for increases in f and r which will lead to a rise in F and V
respectively but also to a fall in the demand for other assets. On the
other hand, an increase in income will lead to a rise in the demand for all
types of assets; hence total private saving will also increase.
5. The estimated equations explaining financial deepening in Cameroon,
obtained by substituting (6) into (1) and (2), are, after correcting for
serial correlation:
(7) 1 - -7.8 + l.l*y + .03*d - .04*f + .08*r - .05*g +.04*n
(-9.7) (6.4) (4.7) (-4.5) (1.5) (-.03) (3.1)
R-squared - .98 D.W. - 2.5 rho - -.49
(8) m - -4.1 + .47*y + .02*d - .03*f + .07*r + .17*g + .03*n
(-4.9) (2.5) (3.2) (-2.7) (1.3) (.94) (2.3)
R-squared - .96 D.W. = 2.4 rho = -.31
where 1, m, and y are the natural logarithms of domestic bank liabilities,
the ratio of M2 to GDP and a measure of permanent income (a distributed lag
of real per capita GDP) respectively. The real return on domestic finan-
cial assets is defined as the interest rate on six-month deposits minus
ex post inflation; similarly, the real return on foreign assets is defined
as the yield on French government bonds deflated by ex post inflation in
Cameroon. Measures of the return on real assets, l.e., time series of the
rate of return on marginal private sector projects or interest rates
charged in the curb markets, are not available. Therefore, as a proxy for
this variable the inverse of the incremental capital output ratio is used.
The variables g and n are defined as the ratio of government to private
deposits in commercial banks and the number of these banks operating In
Cameroon respectively. The equations were estimated using data from 1965
to 1982 (18 observations).
6. Some conclusions can be drawn from these equations.
(a) Income variations affect financial development because the
coefficient on permanent income is positive and statistically
significant in both equations. It is also interesting to note
that the income elasticity of the ratio of bank deposits to GDP
is higher than that of the ratio of M2 to GDP. This is to be
- 25 -
expected because M2 includes currency which should decline
relative to demand and time deposits as income grows. 13/
(b) Both measures of financial development are sensitive to changes
in the real deposit rate--the coefficient on d is positive and
statistically significant in both equations. The elasticity of
the two measures of financial deepening with respect to real
deposit rates are such that a one point rise in the real interest
rate would increase the ratio of bank deposits to GDP by one
point and the ratio of N2 to GDP by 0.9 points all other
variables remaining constant. It should be understood that these
estimates are subject to the errors typical of econometric
analysis and should be taken with caution.
(c) Moreover, the elasticity of the two measures of financial
deepening with respect to foreign interest rates are such that a
one point increase in foreign interest rates would decrease the
ratio of bank deposits to GDP by one point and the ratio of M2 to
GDP by 0.9 points, all other variables remaining constant.
Again, as explained above, these figures should be taken with
caution.
(d) Government deposits with the banking system do not seem to have a
measurable and consistent impact on financial deepening, at least
as measured by these two equations. On the other hand, the
coefficient on the number of banks is positive and statistically
significant in both equations. This seems to indicate that the
quality of services provided by banks is an important determinant
of financial development. However, since the number of banks in
Cameroon is positively correlated with the creation of BEAC in
1973, It is not clear whether the apparent improvement in bank
services is a result of increased competition as originally
postulated or simply a result of the new institutional structure
that was more conducive to financial development. In either
case, the evidence indicates that the structure of the banking
system is an important determinant of financial development.
7. The equations above indicate that the demand for domestic financial
assets is negatively correlated with the return on French assets. This
indicates that despite some exchange controls, private capital movements
between Cameroon and France do exist and seem to respond to profit incen-
tives. Public authorities, therefore, should be cautious in implementing
changes in their financial (interest rate) policies as such changes would
13/ Obviously deposits will in any event continue to grow, and especially
as branch banking develops (an area where Cameroon is relatively
weak, cf. para. 2.16) in a situation where real interest rates are
oitly modestly negative.
- 26 -
affect the level of net foreign Inflows which may be destabilizing in the
short-run.
8. In order to further clarify the effects of interest rate policy on
short-run stability, the relationship between those policies and the real
exchange rate was analyzed. The real exchange rate In this context Is
defined as the purchasing parity real exchange rate vis-&-vis France,
which, since the nominal rate is fixed, simply becomes the ratio of the
French to the Cameroonian CPI. The real exchange rate is postulated to be
a function of flows of net foreign assets, the difference between the
domestic and foreign rates of growth of real GDP and the terms of trade
(Edwards, 1985). Net foreign assets are in turn assumed to be a function
of the interest rate differential between France and Cameroon.
9. This reduced form equation, after correcting for serial correlation
was found to be:
e - 0.08 + 0.08 i - 0.00 gd - 0.04 t
(0.19) (2.5) (-1.1) (-0.46)
r-squared - 0.73 D.W. = 1.4 rho = 0.83
where e, i and t are respectively, the natural logarithms of the real
exchange rate, the interest rate differential (foreign minus domestic rate)
and the barter terms of trade, and gd is the difference between real growth
rates (domestic minus foreign). Since the coefficient on i is positive and
statistically significant, a fall in domestic relative to international
Interest rates leads to a decrease in net capital outflows and hence to a
real depreciation. This result provides further evidence to support our
previous conclusion that the demand for domestic assets is sensitive to
changes in international interest rates.
- 27 -
CHAPTER III
FLOWS OF FUNDS AND THE CAMEROONIAN FINANCIAL SYSTEM
A. Introduction
3.1 This chapter provides an overview of the process by which
Investable resources are allocated through the Cameroonian financial system
to ultimate users. The technique used, flow of funds analysis, permits an
identification of the ultimate sources and uses of funds, and allows an
overview of the major Intermediation channels through which the financial
system allocates funds from surplus sectors and institutions to deficit
ones. Thus the flow of funds analysis provides an accounting of all major
financial transactions In the Cameroonian economy showing the sources-and
uses of funds among firms, households, the banking system, the public
sector and external flows. This analysis can serve as a quantitative
framework for the description and analysis of the diverse financial markets
and for the interrelationships between monetary and fiscal policies
described in greater detail elsewhere in this Report.
3.2 The flow of funds is portrayed by means of a series of f-.nancial
social accounting matrices (FSAMs) (described in Appendix 1) which detail
the distribution of real and financial resources among the different
production activities, agents and institutions in the Cameroonian economy
during a given year. This approach not only provides an accounting frame-
work for financial transactions, as does the more traditional flow of funds
accounts, but it also extends this framework to the real side of the
economy. The approach therefore allows us to capture more exactly the
interrelationships between the real and monetary sides of the economy.
This is particularly important for Cameroon where public sector funds are
not only a very large share of total real resources, but are also an
important source of liquidity to the banking system. Another advantage of
the FSAM is that it necessarily assures consistency between real and
monetary data as with, for example, monetary surveys and national accounts.
This allows a departure from dependence upon published data and permits the
estimation of unknown flows as a residual.
3.3 It should be understood that this flow of funds is based on data
which in many cases are incomplete and/or Inconsistent. Although the FSAM
methodology to some extent allows us to correct these deficiencies, a
number of judgmental factors necessarily enter into the analytical process
(see Appendix 1). In particular, the matrices which are central to the
analysis can show us how funds are channelled from surplus to deficit
sectors of the Cameroonian economy and provide a quantitative framework of
the diverse financial markets as they manifest themselves in that economy.
The FSAM methodology in question Is based upon a series of Interrelated
accounts for each of the productive sectors, economic agents and institu-
tions which follow the principle of double entry bookkeeping ensuring that
for each account expenditures will equal revenues. The advantages of this
approach are that consistency between national accounts data and financial
- 28 -
data is assured. Moreover, from an analytical point of view the FSAM
approach allows the calculation of unknown flows as a residual, showing the
implications across accounts of different assumptions with respect to the
various magnitudes in question. In addition, the FSAMs permit a clear
overview of the interrelationships between the real and monetary sides of
economy.
B. The Savings-Investment Process in Cameroon.
1. Savings, Investment and Institut-ional Financing Needs
3.4 The advent of major oil revenues by 1981 11 changed the character
of the Cameroonlan economy both in terms of investment and financial flows.
Investment has grown from approximately CFAF 85 billion to CFAF 760 billion
-between 1973 and 1984, or from 20X to 25Z of GDP. Prior to 1979, Cameroon
had moderate deficits on current account; gross national savings (GNS) grew
apace with gross domestic investment. Between 1979 to 1981, GNS did not
grow as rapidly as investment, and as a result the current account deficit
increased substantially. The advent of oil revenues in 1981 reversed this
trend; GNS Increased at a faster rate so that by 1984 Cameroon was a net
provider of savings to the rest of the world.
Table 3.1 : Total Savinas and Its Distribution
(billion CFAF and percent)
Fiscal House- Govern- Foreign
Year GUS holds Firms ment Savings
1980 240.8 46,8 113.1 80.9 81.3
100.0% 19.4% 47.0% 33.6%
1981 390.7 72.7 193.5 124.5 108.6
100.0% 18.6% 49.5% 31.9%
1982 461.7 90.1 181.3 190.3 71.7
100.0% 19.5% 39.3% 41.2%
1983 612.0 119.6 215.4 277.0 39.6
100.0% 19.5% 35.2% 45.3%
1984 859.5 190.0 334.0 335.5 -96.2
100.0% 22.1% 38.9% 39.0%
Note: The firm sector includes public enterprises.
Source: The FSAMs for Cameroon.
11 All years refer to fiscal years, i.e., from July to June.
- 29 -
3.5 There has been a marked.change in the sources of savings during
these years; Table 3.1 shows the decline In the importance of net foreign
savings (i.e., from abroad) and private savings (households + firms) and
the relative increase in government savings which took place over the
period. As explained above, the savings from the rest of the world (RoW)
have not only declined In relative terms over this time period but Its
absolute value has decreased as well, so that by 1984 Cameroon became a net
provider of savings to the RoW. Particularly notable is the fact that the
advent of oil had the effect of increasing the relative contribution of the
Government to GNS by 10 percentage points, from 32% to 42X. The proportion
of GNS provided by the private sector dropped commensurately from 68% to
58%, with all of thls relative decline originating in retained earnings of
firms.
3.6 There are some marked differences in saving patterns between
Cameroon and C6te d'Ivoire, a Sub-Saharan African country with a comparable
level of GDP per capita. First, Cameroon's overall savings effort has been
stronger than that of Cote d'lvoire as measured by GNS as a proportion of
GDP. This was already the case in the pre-oil era because,the enterprise
sector seems to have been able to generate a higher proportion of savings
in Cameroon as compared with C8te d'Ivoire; this difference has, however,
diminished during the oil era (Table 3.2). After the onset of oil
revenues, all three institutional sectors in Cameroon were contributing
more to savings as a percent of GDP than in C8te d'Ivoire. Finally,
because of the apparent strength of Its domestic enterprise sector,
government in Cameroon contributes relatively less to GNS than is the case in
Cote d'Ivoire, although differences have narrowed since oil production
began. The Government's share in C8te d'Ivoire is probably artificially
high because it reflects the commodity boom taking place during the years
in which the comparisons were made.
- 30 -
Table 3.2 5 GNS and Its,Distribution in Cameroon and Cfte dILvoire
(percent)
Cameroon Cote d'Ivoire
1980-81 1982-84 1974-76
GNS (% of GDP) 19.8 .24.6 15.0
of which:
Households (6 of GVP> 3.8 5,0 3.4
Firms (% of GDP) 9.6 9.3 3.6
Government (% of GDP) 6.5 10.3 8.1
DISTRIBUTION OF GNS
Households (% of GDP) 19.0 20.4 22.4
Firms (% of CDP) 48.3 37.8 23.7
Government (% of GDP) 32.7 41.8 53.9
Notes: GNS as a percent of GDP for CSte d'Ivoire refers to 1980. The contribution of
each Institutional sector has been calculated using the distribution in 1974-76.
Sources: The FSAMs for Cameroon.
World Bank: Finance in the Development of C8te d'Ivoire (1981).
3.7 An alternative way of identifying the growing savings effort in
Cameroon is to track the evolution of the average propensities to save of
the institutional sectors. While there has been some growth in the average
propensity to save of households, it Is that of the Government which has
most increased most sharply, from 28.2% in 1980 to 39.7% in 1984. This
reflects the fact that current expenditures of the Government have risen at
a slower rate than total revenues, perhaps unsurprising in view of the very
rapid growth In oil revenues over the time period, particularly given the
conservative policies typically followed by Cameroonian authorities with
respect to expenditure growth.
3.8 There has been no significant change in the basic pattern of the
sectoral distribution of gross investment; government has remained the
origin of 1/4 of total gross Investment, firms approximately of the other
3/4, with households being responsible for a negligible amount. 2/ There
has been some Instability in this pattern; thus government's share between
1980-84 has varied from 20% to 28%, with compensating changes taking place
in the share of the en-erprise sector.
21 Investments performed by households when acting in their capacity as
entrepreneurs, e.g., a farmer building a tool shed, have been assigned
to the firm sector. By assumption, only those investments performed
by individuals not directly related to a productive sector, e.g.,
(Footnote Continued)
- 31 -
3.9 The distribution of investment and savings across institutional
sectors determines the net financing needs (savings - investment) of each
of these sectors, that is which sectors are in surplus and which in
deficit. Table 3.3 derives these surpluses and deficits and shows
households growing in importance as a net provider of funds, government net
surpluses increasing very rapidly as oil revenues themselves expanded
rapidly over the period compensating for the growth in public investment
(gross fixed capital formation) and net financing from foreign sources
declining quickly. 3/ Some of these surplus funds are being transferred
overseas but the rest are being channeled through the domestic financial
system to firms whose net financing needs have Increased substantially.
Table 3.3 : Savings, Investment and Net Financing bY Institutional Sector
(billion CFAF)
Households Firms Government RoW
Ne-t Net het Net
Fiscal Invest- Finan- Invest- Finan- Invest- Finan- Finan-
Year Savings ment cing Savings ment cing Savings ment cing cing
1980 46.8 2.5 44.3 113.1 237.8 -124.7 80.9 81.8 -0.9 81.3
1981 72.7 5.0 67.7 193.5 392.2 -198.7 124.5 101.9 22.6 108.6
1982 90.1 10.0 80.1 181.3 392.2 -210.0 190.3 131.3 59.0 71.7
1983 119.6 13.0 106.6 215.4 502.6 -287.2 277.0 136.0 141.0 39.6
1984 190.0 20.0 170.0 334.0 533.5 -199.5 335.5 209.7 125.8 -96.2
Note: The firm sector includes public enterprises.
RoW = Rest of World
Source: The FSAMs for Cameroon.
(Footnote Continued)
housing improvement, are assigned to the household sector. These are
considered to be very small.
3/ Public investment in this flow of funds analysis will differ from that
reported in the tables and analysis of Chapter I on public resource
mobilization. This is because investment here includes only fixed
gross capital formation and does not include expenditures related to
new capital expenditures normally reported in public budgets under
investment, particularly with respect to start-up costs of investment
projects.
- 32-
2. Sources and Uses of Funds: Households
3.10 The pattern of household finance In Cameroon is suggestive
(a) because of its large net surplus position which implies that households
are an important source of financing for the (deficit) enterprise sector;
and most importantly, (b) because of the existence of the informal sector,
which is a major component of the household sector's portfolio, and which
represents a substitute to the formal financial system. Table 3.4 shows
the main sources and uses of total investable funds of households from 1980
to 1984.
3.11 The most Important source of funds for households is their
savings, which have been the origin of approximately 96? of their total
available funds on average. Loans from the commercial banking system are
only a minor component, averaging only about 4% of their total funds.
3.12 In terms of uses of household funds the most important are bank
deposits and the informal sector. The other two uses which account for
about 15% of the total are real investment (e.g., subsistence housing) and
currency holdings. What is particularly noticeable during this time period
is the success which the informal sector had in capturing funds from the
household sector; it accounted for 66% of household savings in 1982/83.
The figures show that during the 1980s the banking system was not a very
attractive proposition to households in terms of portfolio choice in
comparison to the informal sector, although in 1984 the banking system
recovered the relative position it had in 1980. It seeus likely that the
negative real deposit interest rates, the lack of formal financial institu-
tions in the rural areas, and the higher rates paid by the informal sector
were major contributing factors. This suggests that tontines collect a
non-negligible proportion of household savings. In any event, perhaps as
much a one-fifth of informal sector savings are expended on essentially
subsistence housing.
3.13 The informal sector has both negative and positive aspects. On
the positive side, the informal sector has provided Cameroon with a form of
financial intermediation, albeit rudtimentary, that has been an important
complement to the limited funds which the commercial banking sector
provides to the agricultural and SME sectors; it has also been important in
providing an outlet for savings which are not attrav.ted by the banking
sector. On the other hand, the tontine system is not integrated either
among individual tontines or with the formal financial sector, limiting
the degree of financial deepening in the economy; 4/ In fact, the
institutional and social strength of this sector may have impeded the
4/ Basically, then, savings which are "deposited' with the tontines are
much like real (non-financial) savings in that they are not available
to the economy as a whole for intermediation to the most productive
(Footnote Continued)
- 33 -
development of the formal sector. All this suggest the need for the
banking system to be reformed so as to be able to attract those funds.
e.g., raising interest rates on deposits and more importantly offering
services to small savers similar to those provided by the tontines
including easier access to savings Instrumeuts and investable funds.
Table 3.4 Uses jnd Sources of Funds for Households
(in billions of CFAF and percent)
(fiscal years)
USES OF FUNDS
1980 1981 1982 1983 1984
Informal Sector 22.0 29.9 51.6 82.3 70.7
44.6% 41.1% 53.0% 65.8% -36.8%
Commercial Bank Deposits 19.9 26.1 27.8 24.9 93.1
40.4% 35.9% 28.5% 19.9% 48.4%
Direct Investments 2.5 5.0 10.0 13.0 20.0
5.1% 6.9% 10.3% 10.4% 10.4%
Currency 4.9 11.7 8.0 4.9 8.5
9.9% 16.1% 8.3% 3.9% 4.4%
Total Funds 49.3 72.7 97.4 125.2 192.3
100.0% 100.0% 100.0% 100.0% 100.0%
SOURCES OF FUNDS
1980 1981 1982 1983 1984
Real Savings 46.8 72.7 90.1 119.6 190.0
94.9% 100.0% 92.5% 95.6% 98.8%
Bank Loans 2.5 0.0 7.3 5.6 2.3
5.1% 0.0% 7.5% 4.5% 1.2%
Total Funds 49.3 72.7 97.4 125.2 192,3
100.0% 100.0% 100.0% 100.0% 100.0%
Notes: (1) Direct investments by households are investments not directly related to a
productive sector, housing imporvements, for example. They are equal to cell
N2 of the FSAHs (see Appendix 1).
(2) The informal sector is defined to be total real savings of households minus
their direct investments, that is (413-N2) (see Appendix 1).
Source: The FSAMs for Cameroon.
(Footnote Continued)
sector. But they are nonetheless more "productive" than purely real
savings.
- 34
3. Sources and Uses of Funds: Government
3.14 The pattern of government finance in Cameroon has been determined
by several factors. The flrst is that of public savings, which have been
growing very rapidly both in absolute and relative terms because of oil
revenues. The second has been the commensurate decline of foreign loans
both relatively and absolutely as a source of funds. In this respect a
major element in the pattern of public finlnces has been the changes in
public deposits in the banking system which despite the relative stability
of Treasury deposits have on the whole been quite unstable.
3.15 The expansion of oil revenues has had a major impact on govern-
ment finances and lndirectly on the whole financial system. Oil has
permitted government to expand its savings by 42.7% p.a. in nominal terms
from 1980 to 1984, and the share of public savings in total investable
funds doubled over this time period from 44Z to 88% (Table 3.5). This has
allowed government to reduce its dependence on foreign borrowing as a
source of finance for capital expenditures. As a result, the contribution
of foreign savings to total investable funds has fallen from 53.32 to 7.9%
over the period.
3.16 This increase in resources available to the Government has been
used not only to finance the expanding public investment program but also
to increase official holdings of foreign assets. Thus public investment has
increased by 26.5% p.a. over the period (Annex Table 5) while government's
purchases of foreign assets have increased by 69.3% p.a. Taking into
account the flows throughout the entire period, government has also used
the increases in its resources to expand its holdings of deposits at both
the Central Bank and especially in commercial banks.
3.17 These rapid changes in the composition of the Government's
portfolio reflect the major difficulties encountered by the public sector
in channelling an investable resource without overly complicating the
management of liquid assets. The issue faced by Government is how to
channel the resources collected from the successful domestic resource
mobilization effort into the rost productive uses.
3.18 The most straightforward solution-that of increasing public
investments-can only be a partial one. Indeed, given the limited capacity
of the Cameroonian economy to absorb the large amounts of funds available,
the present levels of public Investment are probably close to the absorp-
tive capacity of the economy. The Government, in any case, should
elaborate a post-oil strategy and identify what sectors should be
considered priority sectors for public Investment. Only after such an
exercise can levels and sectoral distribution of public investment be
determined as well as areas in which the absorptive capacity needs to be
increased.
- 35 -
Table 3.5 : Sources and Uses of Funds of the Central Government. CNPS and SUH
(billions CFAF and percent)
USES OF FUNDS
Chane8 in Deoosits at Changes in
Fiscal Direct Loans C4amercial Buying of Overseas TOTAL
Year Investment to Firms B�AC Banks EquiCy Holdings FUNDS
1980 81.8 39.3 3.0 19.4 13.8 26.9 184.2
44.4% 21.3% 1.6k 10.5% 7.5% 14.6% 100.0%
1981 101.9 25.6 -20.7 52.9 10.0 48.4 218.1
46.7% 11.7% -9.5% 24.3% -4.6% 22.2% 100.0%
1982 131.3 26.3 -2.1 27.5 7.4 62.2 252.6
50.0% 10.4% -0.8% 10.9% 2.9% 24.6% 100.0%
1983 136.0 16.8 122.8 41.7 3.3 -0.7 319.9
42.5% 5.3% 38.4% 13.0% 1.0% -0.2% 100.0%
1984 209.7 48.8 -46.8 -54.6 3.0 221.1 381.2
55.0% 12.8% -12.3% -14.3% 0.8% 58.0% 100.0%
SOURCES OF FUNDS
Fiscal Loans from Foreign TOTAL
Year Savings Banking System Loans FUNDS
1980 80.9 5.1 98.2 184.2
43.9% 2.8% 53.3% 100.0%
1981 124.5 7.2 86.5 218.2
57.1% 3.3% 39.6% 100.0%
1982 190.3 18.1 44.3 252.7
1Z5.3% 7.2% 17.5% 100.0%
1983 277.0 12.9 30.1 320.0
86.6% 4.0% 9.4% 100.0%
1984 335.5 15.7 30.1 381.3
88.0% 4.1% 7.9% 100.0%
Notes: Total sources and uses of funds may not be equal because of rounding errors.
CNPS : Caisse Nationale de Pr4voyance Sociale
SNH: Socilte Nationale des Hydrocarbures
Source: The FSAMs for Cameroon
3.19 The Government has in effect also sought to channel funds to the
private sector by increasing its deposits in commercial banks. There are,
however, several problems with this use of public resources. At best,
- 36 -
however, this has done little more than compensate for the substantial
increases in nonperforming assets of these banks since 1979 and this has
done little to offset the near Insolvency of many of them. In fact, this
weak equity position may have led banks to use these extra funds to
increase their holdings of liquid short-term assets overseas which in the
FSAMs can be seen to have been significant over most of the time period.
Finally, another problem with this use of public resources is that the
placing of large amounts in commercial banks which may have to be drawn
down in particular years (for example, 1984, as can be seen in the 1984
FSAM) implies the need for sophisticated liquidity management.
3.20 This particular problem arises from the growing Government
liquidity originatlng In the expanding oil revenues. The Government has in
effect attempted to reduce the impact on domestic liquidity by either
expanding holdlngs of unofficil foreign balances (via-the SNH) or by
increasing its deposits in the Central Bank. Both procedures have the
advantage of sterilizing the financial impact the domestic financial and
monetary system of oil export revenues, although only the second results in
increased holdings of official reserves. The problems arising from present
practices are (a) the difficulties in appropriately managlig foreign
reserves with two different responsible institutions (BEAC and SNH) with
little or no cooperation (in fact, as is wall known, the magnitude of the
unofficial reserves is a well kept secret); and (b) the difficulties which
BEAC will encounter in monetary management and planning with widely varying
net government deposits in commercial banks.
4. Sources and Uses of Funds: Firms
3.21 Cameroonian firms (including the public enterprise sector) have a
multitude of sources of funds, but unfortunately also a multitude of
problems, for their operations on capital account. In addition, because
they borrow more than their direct investment financing needs, they have
additional funds which they place in monetary assets. Table 3.6 shows the
sources and uses of funds of firms in Cameroon over the period covered by
the PSAMs.
3.22 The characteristics of these sources of funds can be summarized
by four basic points. First, the most important source is retained
earnings of the firms themselves; on average from 1980 to 1984 earnings
retentions have accounted for 45% of the total funds available to firms.
This source of funds has consistently increased by large amounts In
absolute terms except in 1982, where because of the low real GDP growth
rate achieved in that year (2.5%) they declined. Second, the informal
sector has been another very important source of funds for firms; on
average it has represented 11% of total funds. Funds from this sector have
also increased in absolute terms every year except for 1984 when the supply
of funds of the informal sector declined because of the increased pro-
portion of household savings being invested in bank deposits as explained
above. Third, the rest of the world has been rising in Importance as a
financial intermediary providing funds to Cameroonian firms. Together
foreign direct investment and borrowing from abroad provided CFAF 110
^ 37 -
billion of investable resources during 1984, or 17.8% of total funds, up
from only 7.82 during 1980. Finally, while the banking system is the major
formal domestic institution providing funds to Cameroonian firms, it has
represented only about 22% of total funds on average from 1980 to 1983. In
1984, the banking system provided only 7% of the total funds avallable to
firms, approximately CFAF 42 billion. This 67% decline in bank credit was
mainly due to the negative Impact of the reduction in government deposits
on the supply of credit and the net improvement in the commercial banks'
position with respect to the rest of the world.
3.23 The basic picture emerging from these figures is that of a very
fragmented financial system which is not performing its intermediation
function very well. Two of the domestic sources of funds, retained
earnings and the informal sector, involve little or no intermediation
because they are either funds originating In the same sector of destination
or funds provided from tontines that have practically no contact with other
tontines or the formal financial institutions. However, funds originating
from the Government are essentially channelled to the parapublic enter-
prises which would not benefit from resources in a well functioning
financial intermediation system. These three sources together approximate
between 65-70% of total funds, leaving only those originating from abroad
and the domestic banking system (30%). Capital inflows from abroad are, in
addition, likely to benefit mainly only those firms having close overseas
ties. It is doubtful that SMEs or smallholders in the agricultural sector
receive any significant portion of either of the sources of funds in
question. In 1984 these two sources represented only around 25% of total
Investable funds flowing to the Cameroonian enterprise sector.
3.24 The patterns in the use of these investable funds have not varied
significantly during this time period, with investment belng the principal
use. As could be expected, investment in absolute terms has followed a
procyclical path; the decline in growth in 1981/82 for example is clearly
reflected in the zero growth of investment in that year.
- 38 -
Table 3.6 : Uses and Sources of Funds for Firms
(billions CFAF and percent)
SOURCES OF FUNDS
Equity Debt
Fiscal Other Retained Government TOTAL
Year Informal Domestic FDP Domestic Foreign Earnin3s Loans FUNDS
1980 22.0 22.1 14.2 54.8 7.2 113.1 39.3 272.7
8.1% 8.1% 5.2% 20.1% 2.6% 41.5% 14.4% 100.0%
1981 29.9 18.4 35.2 109.1 8.7 193.5 25.6 420.4
7.1% 4.4% 8.4% 26.0% 2.1% 46.0% 6.1% 100.0%
1982 51.6 22.6 26.3 102.2 10.0 181.3 26.3 420.3
12.3% 5.4% 6.3% 24.3% 2.4% 43.1% 6.3% 100.0%
1983 82.3 14.3 54.0 127.7 16.4 215.4 16.8 526.9
15.6% 2.7% 10.2% 24.2% 3.1% 40.9% 3.2% 100.0%
1984 70.7 13.3 35.0 42.3 75.6 334.0 48.8 619.7
11.4% 2.1% 5.6% 6.8% 12.2% 53.9% 7.9% 100.0%
USES OF FUNDS
Fiscal Direct Bank TOTAL
Year Investment Deposits Mbney FUNDS
1980 237.8 29.8 5.0 272.6
87.2% 10.9% 1.8% 100.0%
1981 392.2 23.1 5.0 420.3
93.3% 5.5% 1.2% 100.0%.
1982 392.2 24.6 3.4 420.2
93.3% 5.9% 0.8% 100.0%
1983 502.6 22.1 2.1 526.8
95.4% 4.2% 0.4% 100.0%
1984 533.5 82.6 3.5 619.7
86.1% 13.3% 0.6% 100.0%
Notes: (1) Total sources and uses of funds may not be equal because of rounding errors.
(2) PDI is foreign direct investment.
Source: The FSAMs for Cameroon
- 39 -
3.25 The FSAMs permit the breakdown of the flow of funds for firms
into six separate subsectors of destination. There are three basic
conclusions that can be drawn from this disaggregated analysis. First,
agriculture, which is comprised of two subsectors, food and export crops,
derives a very large proportion of its total Investable funds from retained
earnings and the equity account (mainly the 'nformal sector as little
foreign direct Investment has taken place in the food sector or in the
smaliholder export crop sector). Debt has not been a major source of funds
for these two sectors, except for the export crop sector in 1983 (however,
the funds provided by the debt account during this year were probably not
directed to smallholder agriculture but to the more recently introduced
plantation cash crops, as for example, rubber and sugar). Second, the
importance of retained earnings for the two nonagricultural private sectors
has diminished from 1980 to 1983, especially in the case of private
services. For the latter, debt has increased its relative impDrtance from
approximately 30% to 40% and equity, probably originating roughly equally
from both the Informal sector and foreign direct investment, rose from
approximately 18% to 30%. For private industry, both retained earnings and
debt have declined in relative importance as sources of investable funds
from 1980 to 1983, while equity has provided an increasing share, in this
case originating mostly from foreign direct Investment. Third, the
parapublic industrial sector has had a very poor performance over this time
period. Total investable funds have declined by 44% from 1980 to 1983
because of the drop in funds provided by the debt and equity accounts; in
1983 this sector relied on retained earnings for more than 60% of its total
funds.
3.26 This disaggregated analysis can be expanded by examining the
proportion from each source being allocated to each productive sector. It
was found that the informal sector is relatively insensitive to changes in
the prevalent conditions in the economy, that only a small amount of funds
flow to the two agricultural sectors from the banking sector and that there
is a growing amount of total funds from both the equity and debt accounts
being placed in private services. If foreign direct investment of CFAF 54
billion in 1983 is subtracted from the equity funds flowing to private
industries and services, the proportions being allocated to these two
sectors (28%) and to the two agricultural sectors (28%) bave not changed
significantly between 1980 and 1983. The banking system, on the other
hand, has responded by increasing the proportion of funds allocated to
private services from 37% to 53%.
3.27 The picture drawn by this disaggregated analysis is again of a
financial system not performing its intermediation function well. The two
agricultural sectors are isolated from the rest of the economy in the sense
that their sources of investable funds are either internal (retained
earnings) or almost so (the informal financial system). The informal
financial system--for the most part the tontines-allocates its funds
across sectors independently of economic conditions, implying little inter-
sector intermediation. The Rest of the World through both foreign direct
investment and debt, and the domestic banking sector have been more dynamic
although the sectoral disaggregation is not detailed enough to provide a
_ 40 -
clear picture of which types of firms are receiving these funds. In other
words, it is doubtful whether domestic SMEs are receiving their fair share.
3.28 The deficiencies of the financial system-with respect to interme-
diation can also be identified by comparing the relative importance of the
sources of total investable funds-with those of other Sub-Saharan coun-
tries. In CBte d'Ivoire, approximately 22% of these funds are from
retained earnings while 45% are loans from the formal domestic financial
system, compared to approximately 45% and 20% in Cameroon respectively.
While retained earnings may be especially low in Cote d'Ivoire over the
period of the flow of funds analysis as explained in-the flow of funds
analysis report for C8te d"Ivoire, there is little doubt that the Ivorian
financial system has a more "efficient" intermediation system in the sense
that Cote d'Ivoire firms are more dependent on their relative profitability
for their financing. In any case, a priori one would expect a large
percentage of firms in developing countries to be relatively new and thus
heavily dependent on either long-term debt or equity capital for their
financing needs. The results described above imply that new Cameroonian
firms have less access to the capital markets than desirable even though
the high level of retained earnings in Cameroon suggests that these firms
are profitable.
3.29 There are also differences in the uses of total investable funds
be.tween the two countries that indicate a relatively weak intermediation
system in Cameroon. Ivorian firms use approximately 72% of their total
funds for direct real investment, compared to a 91% figure in Cameroon.
The implication of these figures is that Ivorian firms find the financial
assets offered by the financial system more attractive than their
Cameroonian counterparts. It follows that entrepreneurs in Cameroon are
more limited in their portfolio choices and are to a certain extent
"forced" to invest in real assets even if the return on this investment is
low.
3.30 There emerge some clear policy implications from all this discus-
sion. The efficiency of intermediation in the Cameroonian financial system
is in need of substantial improvement. Even though the flow of funds
analysis does not provide sufficient detail for specific recommendations,
the general direction and aim of such measures is clear. First, more funds
should be directed Into the formal financial system, mainly the banking
sector, with increased availability to both households and firms. This
will permit a decrease in the informal sector's importance as a source of
funds, which is, as explained before, segmented both internally and from
the banking system. This must however, take place after a fundamental
recapitalization of the commercial banking sector; as we have seen, with
the commercial banks in their current state of insolvency or near
insolvency, government deposits have not basically contributed to the
intermediation process. Finally, there is a need for other sources than
just the Informal sector to provide domestic equity capital to the private
sector. Funds available from tontines in addition to the already mentioned
problems, are mostly short-term, while equity capital should provide long-
term financing. Changes in the existing interest rate structure and the
- 41 -
new financial institutions proposed for the management of a segment of
public savings will contribute to these objectives by both increasing
financial deepening and providing more term transformation.
C. Summarv and Conclusions: The ImNact of Oil on the Financial
System
3.31 The advent of oil revenues as a major factor in the Cameroordan
economy in 1981 fundamentally changed the pattern of real resource mobili-
zation in Cameroon. Oil has greatly improved the domestic resource mobili-
zation performance of Cameroon. Gross national savings increased very
rapidly from 17.4% to 27.9% of GDP between 1980 and 1984. The main origin
of this savings effort was the Government, whose current expenditures were
not permitted to grow as rapidly as its revenues. The impact of oil on
private savings was indirect: to the extent that increased government
investment expenditures had an impact on the GDP growth rate, the private
sector benefited from oil. 5/ Although it might be expected that in a
developing country the "supply side" effects on the GDP growth rate of
rising government investment would be larger than the demand pull effect of
increased government expenditures, to the extent that the latter had any
effect, the private sector also benefited. In any case, private savings
increased rapidly during these years.
3.32 The changes in the savings pattern and the relative stability of
the contribution of households, firms and government to total gross invest-
ment (negligible, 75% and 25% respectively) have changed the net financing
position (savings - investment) of each of these institutional sectors.
Government has been transformed from being in basic balance to being a
major provider of funds, financing needs of firms have increased substan-
tially and the household sector is still in surplus and becoming more
Important. The strong export performance of the oil sector has transformed
the rest of the world to be a net demander of funds.
3.33 Oil revenue has permitted increasing the public expenditure
program--which has already taken a substantial upward leap; other uses for
these funds have been to channel them toward the parapublic sector and to
place them in commercial bank deposits at home or overseas. Hoiever, both
of these alternatives present deficiencies already discussed in more
detail.
3.34 Beyond this, oil has not brought fundamental changes to the basic
patterns of the Cameroonian financial system either for households or
enterprises or in the relative sizes of the intermediation channels.
Households still place their surplus funds in deposits at commercial banks
5/ The sectoral distribution of these benefits depends on many factors,
including the effects of the real appreciation of the exchange rate on
the relative profitability of tradeables vs. non-tradeables.
- 42 -
and with the informal sector, which is a major competitor both as an
alternative asset in household portfolios and also as a source of financing
to firms. The large volume of funds flowing through the tontines is a
special characteristic of the Cameroonian financial system, and has both
positive and negative assets as discussed above (para. 3.13).
3.35 There have been no fundamental changes in how the enterprise
sector finances operations on the capital account; retained earnings have
remained the major source of Investable funds (45% on average), the infor-
mal sector has provided 11% on average, credit from the domestic banking
system another 20% and the rest from overseas investors and lenders (which
have been recently becoming more important) and direct loans or equity
funds, provided by the Government to the parapublic firms. On a disaggre-
gated basis, agriculture seems to have been cut off from the formal finan-
cial system and there is evidence that the informal sector performs little
intersectoral intermediation.
- 43 -
CHAPTER IV
CENTRAL BANKING IN CAMEROON
4.1 The underlying position of this chapter may be summed up by the
observation that the rules of the franc zone of the Banque des Etats de
l'Afrique Centrale (BEAC), to which Cameroon belongs, while generally well-
designed for the least developed econovdes of the zone states, represent an
increasing constraint to the development of the Cameroonian financial
system. Since the Inception of the franc zone system the Central Bank has
taken over many of the roles which in more developed countries would be
carried out by the second-tier financial system itself. While the system
as now practiced has In many ways well served the member states, Cameroon's
economy now requires a framework of greater sophistication which cannot be
provlded under the present rules of the BEAC, at least as now implemented
in Cameroon. Thus the role of the Central Bank in Cameroon should increas-
ingly be that of ensuring the growth of the money supply in support of
growth and external equilibrium, rather than that of a "partner in develop-
ment," whose cost in financial repression is greater than its contribution
to growth. This Chapter reviews the various institutions of the BEAC and
analyzes their functions with respect to the management of a number of
different policy variables and proposes a reform program for Central Bank
operations-consistent with existing BEAC rules--more in line with
Cameroon's needs as an increasingly sophisticated economy.
A, Money and Credit
1. Introduction
4.2 It is not possible to judge the efficiency of Cameroon's finan-
cial system in mobilizing and allocating resources without simultaneously
analyzing the overall system by which monetary policy is conducted. How
this system is managed has an important bearing upon on the attainment of
domestic and external equilibrium; it will also be of major importance in
setting the stage for economic growth which is consistent with relative
price and real exchange rate stability. As has been suggested in Chap-
ter II, Cameroon's rather interventionist monetary system has considerable
negative impact upon financial resource mobilization and financial
deepening. The question to be examined in Section 1 is whether this
system, in applying an interventionist, growth-oriented strategy focussing
on target sectors, may not be self-defeating. The answer is by no means
obvious. This section concentrates principally on money and credit as an
aspect of Central Banking and treats the question of interest rate
determination and impact only peripherally, this important question being
separately treated in Section B of this chapter.
4.3 Cameroon, as a member of the BEAC-the Central Bank of the franc
zone of central Africa-as opposed to the largely similar BCEAO, which
serves the West African States, participates in an arrangement by which
exchange rates remain fixed at one CFA franc = .02 French franc; exchange
- 44 -
transactions costs are set at zero, and the same parity has been maintalned
since the inception of the zone in 1948. A fundamental feature of the
franc zone system is the virtually complete monetary integration of the
member countries; 1/ besides a common exchange rate, an identical currency
is used with no restrictions on current or capital transactions among the
members. Moreover, common Central Bank discount rates are applied for all
countries, and although interest rates charged to final borrowers may
diverge somewhat, as may credit policies, the degree of actual financial
integration is higher than for any other monetary union save the BCEAO,
whose rules of operation are very similar.
4.4 Another important element characterizes-the union: interest
rates tend to be kept at low levels, 21 i.e., considerably below the Paris
rate structure, despite the high degree of openness of the economies
(including vis-1-vis France, toward which restrictions on capital transac-
tions are limited) and the virtually complete lack of exchange risk. The
notion implicitly associated with this approach is: (a) that incomes are
too low in zone countries to generate much savings, financial or real, at
any interest rate, so that low rates-following this argument-do not
represent an important disincentive to savings, financial or otherwise;
(b) that as a result it is the role of the Central Bank to cofinance and
thereby supplement the meager deposit base through rediscounts rather than
to act as a lender of last resort; (c) that with a generally below market
rate the Central Bank could effectively take over the role of the market in
allocating scarce credit toward appropriate uses; 3/ and (d) that invest-
ments in these countries are elastic to interest rates. The truth of these
propositions, however, is far from being clear.
4-5 With the French treasury standing ready to support the parity of
the CFA franc through an overdraft facility known as the operations ac-
count, it is obvious that domestic demand In the member countries must be
managed in such a way as not to spill over onto the operations account
through balance of payments deficits brought about by excessive credit
creation. Apart from credit rationing necessitated by below-market inter-
est rates, this was believed to require restrictions on fiscal policy,
1/ BEAC member countries are, besides Cameroon, the Central African
Republic, Chad, Equatorial Guinea, the Congo and Gabon.
2/ Thus, "cette politique ... traduit (le) souci (des autoritEs
mongtaires) de maintenir assez stables et a des niveaux relativement
bas les conditions d'lntervention de la BEAC pour favoriser le
dbveloppement Economique des Etats membres." La BEAC a dix ans, Tenth
Anniversary Green Book, BEAC, 1983.
3/ This also assumes that credit rationing, biased against activities,
such as commerce, judged to be of low priority, will correct the
disequilibrium inherent in the rate structure.
-45 -
whose effects in the franc zone countries tend to be potentially much more
expansive than a liberal monetary policy, mainly because of institutional
constraints common to the zone member countries, but also because Govern-
ment borrowing from the Central Bank immediately affects the monetary base,
which Is not necessarily the case with increases in credit to the private
sector.
4.6 For these reasons BEAC regulations tend to be quite strict with
respect to the levels of Government borrowing permitted; generally these
restrict direct (and sometimes indirect) Government borrowing to 20% of
total fiscal revenues. Often this restriction bas proven difficult to
enforce, not only because it does not cover foreign borrowing, but also
because Governments have not infrequently been known to shift fiscal
functions to quasi-government agencies such as commodity stabilization
boards which may enjoy rediscount facilities with the Central Bank. In
Cameroon, however, the Government's recourse to BEAC borrowing facilities
amounts to less than 10% of its revenues, and little or no financial
manipulation of the nature described above exists.
2. Institutional Elements
4.7 Under the BEAC operating rules, the statutes clearly outline the
functions of each level of authority. The most important decisions are
taken by the Board of Directors, which in turn delegates the implementation
of monetary policy in each member country to the National Monetary Commit-
tees. Each of the National (country) Directors acts in the name of the
BEAC Board and the country's National Monetary Committee. There are some
Important differences with the BCEAO which are illuminating. In the BCEAO
countries the Governor calls the meetings of the Board, sets its agenda and
guides its deliberations. In contrast, the chairmanship of the BEAC Board
is exercised by each mmber country in alphabetical order for one year, and
the Governor attends Board meetings only in an advisory capacity. The
Board of BEAC comprises mainly the member countries' Ministers of Finance,
thus institutionalizing the Central Bank's dependence on the national
ministries. This dependence is increased as a result of the powers as-
signed in each country to the National Credit Council. Chaired by the
Ministers of Finance, these Councils are, inter alia, responsible for
deciding the margins to be added to the prime rates (taux
ddbiteurs/cr&diteurs) set by the BEAC board, thus determining the lending
and borrowing rates in each member country.
4.8 Mechanisms for setting monetary policy are very complex within
the BEAC zone, particularly given the effort simultaneously to control, or
otherwise to determine, under conditions of considerable openness:
(a) the external balance, at least to the extent that this negatively
affects the operations account, together with the evolution of
money supply in each member country;
- 46 -
(b) (roughly), the amounts of rediscountable credit going to a large
number of individual sectors, enjoying either privileged or
ordinary access to BEAC rediscounts;
(c) the quality of banks' portfolios with respect to their solvency,
this to be done via rediscount policy bearing on individual
loans, rather than by separate eudits, which take place rarely;
and
(4) the access of individual borrowers to credit according (a) to
their total exposure; and (b) their own apparent creditworthi-
ness.
4.9 Thus the statutes simultaneously impose restrictions bearing
upon: (a) growth of the money supply; (b) amounts of credit flowing to
favored versus non-favored sectors; and (c) overall portfolio quality, as
judged by two separate criteria. Later we will see that the relationships
between instruments used and targets sought are excessively complex to the
point where decision-makers can have little or no idea about the effect of
individual policy measures on quantitative or qualitative targets: as a
result, these measures are often honored in the breach. In any event,
there is considerable question as to whether a number of these targets are
in fact achievable, or even desirable. There is also the problem that the
complex criteria established by BEAC operations substitute for decisions
which basically should be made by the market (at least in a relatively
sophisticated economy such as that of Cameroon) and that this may have
inhibited domestic financial development.
3. Monetary Policy and its Conduct
4.10 The simplified BEAC balance sheet shown below indicates that
there are three asset components entering into the monetary base (BEAC
liabilities). These liabilities-the counterpart of the assets in
question--are currency in circulation and commercial bank reserves, and it
is these which, via the money multiplier, are the base of the money supply.
As is the case with any Central Bank, the BEAC has a number of alternative
ways in which to affect the money supply. Theoretically, it could affect
bank reserves directly, either through open market policy or by changing
reserve requirements, although as a practical matter these options are not
currently open to it. Or it could operate on the currency component of the
monetary base through any of the three components of its assets.
BEAC Balance Sheet (1984)
CFAF Billions
ASSETS LIABILITIES
Net Foreign Assets 3.7 Currency in Circulation 146.0
Loans to the Treasury -5.1 Reserves with BEAC 7.3
Bank Rediscounts 162.3 Capital Account 7.6
TDTAL T9 TOTAL T
- 47 -
4.11 Essentially, by opting to keep domestic interest rates fixed at
levels below International (Paris) rates to stimulate investments (see
Table 4.3), BEAC has In effect chosen to accommodate changes in the money
supply which result from the interest-rate differential in the open franc
zone economies; it does not use interest rate changea to affect net foreign
asse:s (or via that account currency in circulation). 4/ Since interest
rates are set at low levels compared with international rates, Central Bank
rediscount policy is made complicated because it must simultaneously be
conducted: (a) so as to counteract the balance of payments leakages due to
the capital flows associated with these rates and adjusting for changes In
Paris rates since domestic rates are far les flexible; and (b) to permit
growth in the domestic money supply sufficient to satisfy the demand for
real balances consistent with stable domestic growth and external balance.
Particularly when mainta!aing a disequilibrium interest rate this may be an
impossible task.
4.12- BEAC rules permit Central Bank lending to the Government
according to a fixed formula, which provides for Central Bank financing of
Government deficits in a negotiable amount which may be up to 20X of total
fiscal receipts of the Government (plus lending to public enterprises).
This Implies that public sector credit needs will be accommodated before
those of the private sector, so some crowding-out may be involved.
However, Government borrowing is considerably below statutory requirements
in Cameroon, and in any event Central Bank lending to the Government is not
a discretionary item by which money supply can be manipulated.
4.13 While compulsory reserves have been authorized since 1977,
reserve requirements have not yet been implemented in Cameroon, largely
because these have been felt to be unnecessary under the current system.
In any event voluntary reserves amount to less than 52 of the total mone-
tary base. Open market policy, moreover, is nonexistent. Thus in effect
the only discretionary measure the Central Bank possesses to control the
money supply is through changing the currency component of the monetary
base by use of the rediscount mechanism. 5/ Even this mechanism is
weakening, however, since the independence of the Cameroonian financial
system from the Central Bank has grown considerably over the past decade,
4/ Another way of saying this, however, is that monetary authorities
cannot easily use interest rate changes to change the money supply in
their open economies, since a rate change will lead to offsetting
changes in the net foreign asset account.
5/ This does not, however, exclude the possibility that the Central Bank
might (with the agreement of tte Government) shift Government balances
currently on deposit with the BEAC into, and out of the commercial
banks. This would be closely similar to conducting an open-market
policy using Government debt (which is practically non-existent in
Cameroon).
- 48-
with the demand for Central Bank money (BEAC rediscounts) down to 21% of
total lending by 1984, as compared with 31% in 1976. This Independence is
manifested analytically in the decline in the share of currency in the
monoy supply (from 28% of M2 in 1976 to 18% in 1984): as explained above,
the currency-component of the monetary base ls virtually the only part of
that base over which the Central Bank has control in the absence of compul-
sory reserves.
4.14 It must be emphasized that the absence of any real overall BEAC
monetary policy has not yet had any dramatic repercussions apart from the
contribution of interest rate policy to some financial repression. Mone-
tary policy has been accommodating, having passively adapted to external
shocks, changes-in public sector liquidity, etc., shown, among others by a
relative stability in the M2/GDP relationship. 6/ The balance of
payments position, although obscured somewhat by the management of oil
earnings, remains healthy, there is little obvious "crowding out," and the
system is not contaminated by a government budget which is out of control.
Thus the main concern must be to develop a monetary system vhose capacities
of intermediation and resource mobilization are commensurate with the
requirements of Cameroon's relatively sophisticated economy, particularly
in providing access to the formal credit system to borrowers-such as the
small and medium-scale enterprise sector-which are usually excluded, and
in giving stimulus to growth rather than impeding it. There is some reason
to believe that the BEAC regime may have somewhat constrained the capacity
for intermediation of the Cameroonian financial system, particularly in
that more or less automatic access to BEAC rediscounts, especially for
medium-term loans, tends to inhibit the development of non-bank intermedi-
ary Institutions which could render the same services.
The System in Practice
4.15 The functioning of the BEAC system is centered about: (a) a set
of prime (rediscount) rates which form the basis of the member countries'
entire interest rate structure; (b) a set of multi-purpose banking ratios
which have both macro-economic as well as micro-economic implications and
seek to ensure stability (or solvency) at the banking as well as firm
levels; (c) various absolute (as opposed to relative) ceilings, of which
the most important is that pertaining to rediscounts, which are established
for overall lending, as well as for individual enterprises; and (d) the
quantitative restrictions on lending to the Central Government.
6/ However, this may suggest some increasing financial repression as the
degree of monetization increases in a growing economy which continues
to have a relatively high level of subsistence agriculture.
- 49 -
(a) The Prime (Rediscount) Rates (Taux de Base) 7/
4.16 The Board of Directors of the BEAC sets five identical prime
rates for all member countries. These are:
(a) the ordinary prime lending rate (taux de base debiteur ordinalre:
TBDO), which is BEAC's regular discount rate, now equal to 9%;
(b) the preferential prime lending rate (taux de base d4biteur
priffrentiel: ThDP), now 5.25%;
(c) the prime borrowing (deposit) rate (taux de base cr6diteur: TBC),
now equal to 2.5%;
(d) the lending rate to the national treasuries relative to advances
on current account (taux des concours aux Tresors), now 4%; and
(e) the penalty rate (taux de p6nadit6), 18%.
4.17 Each country's Natlonal Credit Council can, within certain
limits, decide upon the margins to be added to the first three of these
prime rates to establish final borrowing and lending rates. Thus consider-
able differences in nominal rates of all categories (save for the penalty
rate and Treasury borrowing rate) are found throughout the BEAC zone. In
Cameroon, the application of these margins results in a total of 21
different lending rates and 49 different deposit rates, all
administratively determined.
(b) Tar8et Ratios
4.18 In addition to setting base deposit and rediscount rates, BEAC
decides on the quantitative ratios which protect depositors from bank
insolvencies. Here again, it is up to the natioual credit councils to set
the actual value of these ratios. The ratios in question are: (a) the
liquidity coefficient; (b) the lending/capitalization ratio; and (c) the
ratio of deposits to non-rediscountable credit. The values of these ratios
for the BEAC member countries are shown in Table 4.1.
7/ These rates were lowered on Mlarch 26, 1986. The new rates are 5.0%
for the preferential prime lending rate, 8.5% for the ordinary prime
lending rate, and 16% for the penalty rate. The rate for advances to
the national treasuries was maintained at 4.0%.
- 50 -
Table 4.1 . BEAC - 1mpsed Bank Ratios
Liquidity Ratio 70% 75% 809
c Cagroon People' s�public of CIOU
the Congo, Gabon
Lending/Capitalization
Ratio _ .2italization 5% overall 7% for rediscountable loans
Cameroon 10% for non-rediscountable loans
Remaining BEAC countries
Use of deposits 25% for demand deposits
for non-rediscountable 50% for term deposits
loans All countries
Table 4.2 Liquidity and Non-Rediscountable Loan/Deoasit Ratios.
December 31. 1984 (provisional)
ZEDCNR /a
Banks Liquidity Ratios Authorized Actual
SGBC 94.8 40.8 44.1
SCB 99.7 38.2 70.7
BICIC 86.8 38.6 60.6
BIAOC 71.8 37.9 66.5
BCC 120.1 40.5 91.2
BPPB 59.6 45.3 86.0
Bank of America 20.2 44.4 95.5
Chase Bank Cameroon 80.9 40.5 72.6
Boston Bank 94.1 44.2 130.1
Cameroon Bank 69.5 42.8 83.2
/a Coefficient d'emploi des d4ptks en credits non-rdescomptables (use of deposits for non
rediscountable credits).
4.19 Of these various ratios, only the liquidity ratio (liquid assets
+ readily rediscountable assets/current liabilities) is widely observed by
the banks; in December, 1984, only three of the ten commercial banks (one
of them the bankrupt Cambank) had a ratio below the required level of 70%.
(See Table 4.2) It should be noted that this ratio is, In effect, multi-
purpose and thus under-determined. On the one hand it seeks to ensure
- 51 -
banks' liquidity and therefore solvency; on the other, by excluding from
rediscount assets declared non-priority it also introduces a qualitative
judgment into the calculation.
4.20 The fact that most banks In Cameroon have little difficulty in
adhering to the prescribed ratio may be related to an excessively broad
definition of the term "liquidity." Probably more relevant, however, is
the fact that these figures reflect the excess liquidity position of the
banks, via public deposits, generally.
4.21 With respect to the lending/capitalization ratio, ("ratio des
fonds propres"), this ratio, like the liquidity ratio, is designed to
protect bank solvency;-unlike the liquidity ratio it is purely a quantita-
tive measure. Banks in Cameroon are strongly in non-compliance with the
ratio, and show loans in excess of 45% of what they would be if the 5%
ratio were adhered to. If the assets in question were written down, as
their heavy load of non-performing assets would suggest, the stability of
the banking system would be even more open to question. However, any
attempt by the monetary authorities to enforce this regulation would have
severely deflationary effects on the economy.
4.22 The ratio of deposits to non-rediscountable credits also combines
quantitative and qualitative restrictions, and as is the case with the
capitalization coefficient, Cameroonian banks are far from being in
compliance (see Table 4.2). While the ratio is principally designed to
orient lending to desired sectors, it would also have quantitative
implications to the extent that demand from the rediscountable sectors is
not forthcoming at given interest rates, and this Is the main reason:
(a) for the generalized non-compliance; and (b) why banks are not pressed
by BEAC to restore their ratios to compliance. Since, however, loans to
individual firms may not be rediscountable because BEAC adjudges them to be
insufficiently creditworthy, we again find a ratio which as a single policy
variable may affect a multiplicity of targets.
(c) Rediscount Ceilings
4.23 Among the multiplicity of policy instruments the principal
intervention instrument (apart from the restrictions on Government
borrowing from the Central Bank) is the rediscount ceilings. As with the
lending ratios discussed above, with which they have Important points of
intersections (and which basically combine to over-determine the system),
these ceilings are used not only to control the quantity of credit, but Its
quality as well. 8/ These ceilings (plafonds de rIescompte) are determined
by the National Monetary Committees for the individual member countries in
8/ Since 1977 the principle of compulsory resei :es has been formally
established but not yet implemented in any of the member countries.
This is also the case in the BCEAO.
- 52 -
accordance with levels set for the zone as a whole by the BEAC; these are
then subdivided according to individual banks, types of loans, and
individual rediscount limits for each borrower.
4.24 It is important to realize that the aggregate rediscount ceilings
are far in excess of levels required by the Cameroonian financial system;
at present roughly 20% of total lending has its source from BEAC redis-
counts as compared with the quantitative ceiling which would permit more
than double this level. This reflects not only the institutional difficul-
ties in finding attractive rediscountable loans, but suggests an increasing
maturity of the Cameroonian financial system itself. It may also reflect
excess liquidity due to Government deposits.
4.25 The individual rediscount limits (i.e., with respect to
particular enterprises) represent an important element of the overall
rediscount-oriented BEAC system, and they have considerably more "bite"
than the aggregate ceilings. These individual limits are basically
determined by an advance examination by the National counterparts of the
BEAC of the financial situation of the individual borrowing enterprise, the
sector of its activity and the nature of the operations to be financed.
One of the most important elements in the determination of the individual
discount limits is the firm's working capital position.
4.26 The above criteria apply to short-term lending to individual
enterprises. With respect to medium-term loans, the BEAC will give a
"prior authorization" for loans to the individual enterprise (up to the
limits in question). 9/ As with a number of other elements of the system,
the ultimate impact of this policy measure is unclear. On the one hand, if
individual firms are unable to meet the criteria In question their borrow-
ings will have to be made on somewhat less favorable terms out of the
banks' own deposits, rather than through rediscounting. On the other hand,
because of the allowable margins on lending, which are greater than for
rediscountable loans, the latter loans are more attractive for the banks.
Thus the ultimate impact of the system may be to encourage the loans which
it seeks relatively to discourage.
4. The Rediscount System: An Evaluation
4.27 The rediscount system is pivotal to the functioning of the
BEAC/Cameroon monetary system. Because of the multiple advance determina-
tions required with respect to whether a loan is rediscountable or not, the
Central Bank's involvement in the whole process must be an intense and
time-consuming one whose quantitative implications must be Intimately
The prior authorization rule ("autorisation prWalable') now operates
automatically, but it might be redesigned to work on a discretionary
basis as one means of supporting a possible global credit restraint
system.
- 53 -
Involved with the qualitative aspects In auestion. Among others, this
significantly extends the lead time for BEAC responses to bank applications
and implies considerable uncertainty with respect to whether the loan will
be rediscounted or not. With the large number of lending rates about which
determinations must be made on all sides, the overall efficiency of the
financial system in responding to the needs of the economy is compromised.
Also, with the BEAC taking on the task of essentially examining the credit-
worthiness situation of virtually each individual borrower, there seems to
be some inclination for the commercial banks to slight this aspect of their
activities. Thus apart from the lending margin aspect of non-
rediscountable lending mentioned above, the difficulties in obtaining
agreement for refinancing have also induced the banks to increase the
volume of non-rediscountable loans well beyond the limits implied by the
ratios get for such lending. The established rediscount procedures have
probably had the opposite effects from those intended, and raise the
question as to whether they are really viable.
4.28 Table 4.2 indicates that as of December, 1984, the ratio of non-
rediscountable credit to deposits is far in excess of that authorized for
all banks in Cameroon. This drift has been noted for some years. Although
the monetary authorities have means to correct the situation through the
use of the 18% penalty rate for all rediscount operations until the ratios
are brought in line, these penalties are not levied. This is in large part
due to the tacit understanding that the instruments of monetary policy (of
which the restrictions on non-rediscountable credit are an important
element) in fact tend to overregulate the system. It also reflects the
understanding that the imposition of such sanctions would badly compromise
the commercial banks' already extremely poor operating position stemming
from their poor portfolios.
4.29 The system as such is perhaps not inappropriate in a country
(such as Chad, or the CAR) where savings, financial and real, are con-
strained by low income (and thus where Central Bank rediscounting may be of
considerably greater importance than lending out of deposits); where the
Central Bank may be the only safeguard with respect to the quality of
loans; and where low interest rates may be considered the only way to
stimulate private investments in a relatively primitive economy dominated
by the public sector. Under such circumstances the social cost of
financial repression may be relatively small and administrative complexity
a small price to pay for financial development. For Cameroon, on the other
hand, all of these elements may severely compromise the ability of the
financial system to deliver the services required of an increasingly
sophisticat*d economy.
5. A Reform Program
4.30 We have seen that the Cameroonian monetary system (as exercised
within the context of the BEAC) is excessively complex without permitting
the exercise of real control over the domestic monetary environment.
Policy instruments simultaneously related to quality and quantity have
controlled neither, but have muddied the waters with respect to the
- 54 -
relationship between instruments and targets. Moreover, there is no
evidence that the interest-rate structure gives stimulus to investments,
either overall or for favored sectors; if anything, the Interest rate
structure, particularly with respect to permitted bank margins, has
perverse effects. In addition, interest rate policies have constrained
financial deepening, and particularly favorable terms extended to medium-
term loans may have worked to constrain the ability of the Cameroonian
financial system to carry out term transformation effectively. The
distinction between rediscountable and non-rediscountable credit has not
brought an increase in rediscountable credit; IO/ nor has it prevented the
system from being burdened with low quality Loan. Thus ratios bearing
upon this distinction are continuously honored in the breach. However,
administrative complexities continue to Inhibit the system as banks are
frequently unable to determine whether a loan being granted will be
rediscountable or not; nor can they easily know--with 21 different
possibilities--what interest rate will be chargeable.
4.31 Reform of the Cameroonian system should thus involve a number of
elements, of which simplification should be a major one:
(a) the commingling of qualitative and quantitative targets should,
to the extent possible, be avoided;
(b) in particular, the distinction between rediscountable and non-
rediscountable credits should abolished, with all loans being in
principle rediscountable, with quality criteria not being exer-
cised on a loan-by-loan basis;
(c) to compensate for this, the role of lending/capitalization and
liquidity ratios should be strengthened;
(d) individual credit limits should be eliminated, as should prior
authorizations;
(e) interest rates should be aligned on international (generally
Paris) rates;
(f) overall credit ceilings should be applied as the main instrument
in the control of growth in the money supply (as opposed to
rediscount ceilings) 11/ and;
10/ That the effect may have been opposite from that sought is itself
reflected in the sharp decline of BEAC rediscounting, as a percentage
of total lending, since 1976.
11/ Given the openness of the Cameroonian economy, the enforcement of
overall credit ceilings would require including borrowing from parent
banks in the ceilings in question.
- 55 -
(g) compulsory reserve requirements should be considered as a tool
for reinforcing a credit allocation scheme.
4.32 In order to allow the abolition of the distinction between
rediscountable and non-rediscountable credit (as well as permit the trans-
fer of bank control functions to the national authorities), the Central
Bank would be concerned with the initial examination and financial analysis
of loan applications only In exceptional circumstances. Together with
stricter attention to liquidity ratios, and lending/capitalization ratios
and strengthened supervision over bank portfolios by the Direction du
Conteole of the Ministry of Finance, the category of non-rediscountable
credit would be dropped, as would individual credit llmits and prior
authorizations.
4.33 Clearly, a satisfactory recapitalization of the commercial bank8
would have to be undertaken before any changes, such as the above, could be
introduced. Possible modalities toward this end are discussed at length in
Chapter V.
4.34 In order not only to lessen financial repression, but to reduce
the burden on the financial system of rationing credit where interest rates
were below equilibrium, and to simplify the maintenance of macroeconomic
equilibrium, as well as of the control over the money supply, domestic
Interest rates should be aligned, probably on a quarterly basis, on Paris
rates. This would not, however, preclude the use of a preferential dis-
count rate. 12/
4.35 In order to provide for a greater degree of control over the
domestic money supply (assuming that Interest rates are neutral in their
effect), an overall credit ceiling policy (encadrement de crOdit) should be
instituted. A policy of this nature, which would determine the overall
amount of credit to the private sector desirable given expected changes in
net foreign assets and government borrowings, would have the advantage of
being more precise and easier to control than rediscount ceilings 13/ with
respect to setting monetary growth. This would be the case since it would
directly affect the money supply, unlike the current system, where the
relationships between rediscount ceilings and money supply are highly
12/ Details as to how a new rate structure might appear will be presented
in the following section.
131 Again, it should be emphasized that this approach to controlling
monetary growth has not resulted in any particularly untoward events
in Cameroon's financial history. Given the very open nature of
Cameroon's economy this would have been unlikely. But the approach
proposed here has the advantage of reducing administrative
unwieldiness and making the system more adaptive to the needs of an
increasingly sophisticated economy.
- 56 -
obscure. It would also be more easily possible, via this mechanism, to
control the money supply: (a) where the Independence of the BEAC rediscount
mechanism is in any event increasing; and (b) in tandem with substantial
Treasury balances whose manipulation might have considerable impact, as
shown above, on the money supply.
4.36 Under the credit ceiling policy, an overall credit packages i.e.,
total amounts of credit which the banking sector would be permitted to
grant over the course of the year, would be allocated to the individual
banks roughly according to existing sizes of banks as well as according to
the efforts made by the individual banks to increase deposits, with prefer-
ences perhaps being given to the mobilization of term, as opposed to demand
deposits. While rediscounting would continue, no ceilings on rediscounts
would be set, as is currently the case. Banks would be permitted to
exchange credit allocations on the open market, possibly in conjunction
with the money market system, or against an administratively mandated
penalty rate. Alternatively, if guidelines were exceeded by individual
banks, they could be obliged to increase their deposits of non-interest-
bearing reserves with the Central Bank. 14/
4.37 As noted above, credit authorizations would take into account the
expected evolution of government borrowings and net foreign assets. On
this basis indicative ceilings could be set for a year but made binding,
say, for the following three months; depending upon changes in these
counterparts of the money supply, credit allocations could be modified as
needed.
4.38 The credit ceiling policy, instituted in 1977 in Gabon and thus
compatible with BEAC rules, is a much more powerful and precise mechanism
for controlling domestic credit than the current system of rediscount
ceilings. It also tends to be less intrusive with respect to monetary
management and less inhibiting of financial intermediation generally.
Particularly with the abolition of the distinction between rediscountable
and non-rediscountable credit it is also administratively much easier to
manage, although it does require a more precise information and data system
than now used so that the BEAC would be able to keep track of the evolution
of credit by banks and institute mid-course corrections as required. The
system can also be used in order to stimulate deposit mobilization, and
particularly to encourage the development of term deposits by the commer-
cial banks.
4.39 Simultaneously with the institution of the credit ceiling system
the de facto introduction of compulsory reserves would be desirable because
this would permit the BEAC an additional instrument of fine-tuning for
14/ Another possibility would be that current in the BCEAO countries,
where the "autorisation prealab ~" measure is used by the Central Bank
to grant supplemental credit authorizations.
- 57 -
overall credit, particularly with respect to penalties for banks overshoot-
ing sgreed credit expansion limits, whether financed by domestic deposits
or borrowings from foreign banks. While other collateral measures control-
ling the overall evolution of credit and the money supply might be applied,
the increased use of the reserve requirement would, in principle, be
desirable as a means of directing the BEAC system--at least as practiced in
Cameroon-toward a less all-encompassing role, and more one which focussed
on the basic aggregates.
B. Interest Rates
1. Introduction
4.40 We have argued that interest rates in Cameroon are excessively
low, not only absolutely-particularly in real terms--but also in
comparison with Paris rates. This has tended to cause financial repression
by discouraging domestic financial savings, but also to inhibit the
development of a domestic capital market as the attraction of higher Paris
rates, together with various institutional factors, has drawn shorter- and
even longer-term resources from the domestic capital market. Table 4.3
gives a useful overview of the situation. Before proposing a new interest
rate structure and rules for its determination, designed to be compatible
with the BEAC structure as it now exists, we will examine some other issues
bearing upon the interest rate structure and levels (including possible
"'crowding out" effects and the Impact of "targeting") and upon its role in
overall monetary policy.
Table 4.3: 2onarison: Cameroonian/Paris Interest Rates
Cameroon Deposit Paris Interbank Differential:
Rates /a Rate /b Paris/Cameroon
1975 5.5 7.9 2.'+
1976 5.5 8.6 3.1
1977 5.5 9.1 3.6
1978 5.5 8.0 2.5
1979 5.5 9.1 3.6
1980 7.0 11.8 4.8
1981 7.0 15.3 8.3
1982 7.0 14.9 7.9
1983 9.0 12.5 3.5
1984 9.0 13.3 4.3
/a Tine deposits rates paid for six to twelve months deposits for amounts in excess of
CFAF 75 million.
/b Annual average bank overnight rate.
- 58 -
2. Interest Rates and Monetary Policy
4.41 Under the current monetary regime, interest rates are not used as
an instrument of monetary policy in Cameroon. As we have seen, the average
rate is maintained at low levels in order to give stimulus to domestic
investments; within the average rate structure particularly low rates are
provided for via BEAC's "privileged" discount rate. The latter is uniform
throughout the BEAC zone, but may be modified by permissible margins for
loans to final borrowers which will differ from country to country depend-
ing upon the decisions of the independent National Credit Councils. Thus
monetary policy is essentially designed to accommodate the interest-rate
structure, which itself is adjusted only once every two to three years.
Since the low interest rates compared with the Paris structure give rise to
capital outflows of varying levels and intensity, and since levels of
government borrowing are ordinarily automatically accommodated up to a
fixed level (80 that government borrowing is essentially preemptive of
domestic credit), 15/ this has had the result that the entire burden of
accommodation is placed upon rediscount policy.
4.42 The alignment of the Cameroonian interest rate structure on Paris
rates on a regular basis would not only remove a basic impediment to
financial deepening but would also work to offset the impact of capital
flows on the money supply. It would thereby permit credit policy to focus
entirely on satisfying the liquidity requirements of the economy itself and
would simplify the policy target/policy instrument relationship.
4.43 An important consideration relating to the upwards shift in the
interest rate structure resulting from the alignment on Paris rates is the
Impact of the interest rate level on savings on investment. It is clear
that the low interest rate structure has had a negative impact on finan-
cial, if not real savings. However, the degree to which the interest rate
structure has had an unfavorable impact on investment is another matter.
Very likely this has been very little, particularly in light of the poor
state of money and capital markets which the Cameroonian investor faces.
No proof either way is available, but a part of the impact of tba alignment
on international rates could be mitigated by the removal of the taxes which
are now imposed upon borrowing. Should these taxes, the TDC and the
ICAI-whose fiscal return is negligible--be removed (or recovered from bank
profits), this would permit approximately a 2.5 percentage point reduction
15/ As we have seen, this is not the case for Cameroon, whose borrowings
from the Central Bank have always been below statutory limits.
However, if circumstances required, the Government would very likely
obtain the authorization from the BEAC to increase its borrowing to
the statutory level of 20% of fiscal receipts, which, if external
balance were to be maintained, would abruptly crowd out private
borrowing, particularly to the extent that commercial banks were
dependent upon BEAC rediscounts, rather than deposits, for lending.
- 59 -
in interest costs to the borrower, which would considerably offset the rise
in interest rates resulting from alignment.
3. Interest Rate Selectivity
4.44 While crowding out does not appear to be a problem in the
Cameroonian economy, the targeting of priority, or privileged sectors does
entail a certain cost to the economy and the banking system. Target
sectors, which benefit from the 5.25% privileged rediscount rate, include
agriculture, both for marketing as well as for export, small- and medium-
scale enterprise, loans to cooperatives and state organizations, social
housing, etc. Probably the main problem with interest rate selectivity is
not so much that-the banking system bears Its cost (although this does
happen) but that It adds a considerable measure of complexity to the system
without having much stimulative effect. This is, if anything, pointed up
by the fact that none of the commercial banks has been able to comply with
the requirement that 10 of their total credits must be made to the SME
sector, despite its privileged access to rediscounts.
4.45 A major problem in this regard is the fact that for privileged
credits, approved margins over the 5.25% rediscount rate vary between 2.5%
(if the credit is within the agreed limit, and therefore rediscountable)
and 3.5% If it is non-rediscountable. Given the fact that the processing
costs and risk premiums are probably highest for the loans in question
there is little doubt that the effects of the low-margin policies are
perverse, with the incentive effects of the low rediscount rates being
completely overwhelmed by margins which in most instances are considerably
below bank costs.
4.46 Based upon the differentials between rediscount rates for privi-
leged and ordinary loans (3.75%) and average final lending rates for the
two types of loans (5%), it Is possible, taking into account the importance
of these loans in banks' total portfollos, to calculate the opportunity
cost to the banking system of making privileged loans as compared with
ordinary loans (assuming both are rediscountable). This cost is equal to
approximately 1.3 percentage points over the average deposit rate and gives
an indication of amount by which deposit rates could be increased if the
targeting system were to be abolished. While this is not a particularly
heavy burden it obviously contributes to a dampening of financial resource
mobilization. Possibly preferable to the abolition of the targeting system
(which in any event does not appear to be compatible with the current BEAC
system) would be an increase In banks' permissible margins for privileged
loans. While this would increase the final cost to borrowers it would
provide banks with more incentive to accepc the higher risks and costs
associated with these loans. Moreover, changes in the margins in question
could be made independently by the National Credit Councils.
4. A Revision of the Interest Rate Structure
4.47 We have suggested that the Cameroonian interest rate levels
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should be aligned with those of the international markets, generally those
of France. Ideally, interest rate determination shou-ld by left to the
market. However, with the commercial banking sector being highly
concentrated, and with capital markets being as fragmented and segmented as
they are, the result would bear little relationship with that which should
result from an open competition in the supply and demand for loanable
funds.
4.48 The current rate structure provides for 21 different lending
rates. The multiplicity of lending rates results from: (a) the distinction
between discountable and non-rediscountable; (b) the distinction, within
each category, of short and medium-term; and finally. (c) the distinction
between privileged and ordinary operations. Thus it is possible, under the
system, to have a privileged, non-rediscountable, medium-term loan, 16/
which would bear a considerably different rate (9.75%; if it were redis-
countable the rate would be 7.75%) than an ordinary non-rediscountable
medium-term loan (13.75%). Apart from penalty rates, borrowers may pay
between 7.75% and 15.25% for their loans. These lending rates are
basically calculated from the two BEAC-set "prime" rates of 5.25% for
privileged operations and 9% Lor non-privileged operations by the
establishment, by the national monetary authorities, of permissible margins
over the prime rates.
4.49 The abolition of the category of non-rediscountable credit would
result in a greatly simplified rate structure based on only two distinc-
tions: privileged vs. ordinary and short-term vs. medium-term. With the
identical distinctions being made within these categories as presently,
this would result in ten lending rates plus the penalty rate. Assuming
that the same sub-categories as presently existing would be maintained via
differentiations around a given base lending rate for the category as a
whole, 17/ four such lending rates can be established.
4.50 At least until the advent of a zone-wide money market (discussed
below) however, Cameroon's national monetary authorities must continue
operating on the basis of the privileged and ordinary rediscount rates
established zone-wide and not with respect to their average borrowing
costs. This problem is, however, easily accommodated by the fact that the
adjus :ment of permissible margins over the base rates is under the juris-
diction of the national Ministers of Finance. This means that Paris rates
16/ It will be recalled that a privileged loan may not be rediscountable
if the amount of the loan is in excess of the borrower's individual
credit limit.
17/ In fact, the best approach would probably be to establish a range
("fourchette") for the base lending rate for each category; while bank
competition is not very strong, this would allow for differences in
risk for lending within the category.
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can be taken as a reference point, with the marg.lns set as appropriate to
achieve a final lending rate. Subsequently, the margins legal under the
BEAC can be expressed as the margin determined plus or minus the difference
between the Paris rate and the base rate. Furthermore, some safety valve
would be built into the system by permittinu banks who have reached their
assigned credit allocation within a given period to borrow a portion of the
allocation assigned to other banks at negotiated or eveu penalty rates, so
that In effect there would be a market for credit allocations.
4.51 The solution above is somewhat legalistic, and doubtlessly the
new arrangement would be carefully scrutinized by other member countries,
particularly the poorer ones, which would find investable funds absorbed
into the richer member countries. On the other hand, it seems clear that
if Cameroon's financial system is to develop commensurate with the sophis-
tication of other sectors of Its economy it needs to reduce the present
constraints to its financial development.
4.52 Assuming, as argued above, that the two tax categories affecting
lending rates, the TDC and the ICAI, were themselves abolished, this would
give rise to the following possible base lendiug rate structure which is
designed so that on average margins would be equal to the present margin on
short-term ordinary rediscountable loans, or 5.75%. The rate structure,
moreover is designed to encourage medium-term lending to productive invest-
ments, with the ranges being provided to take account of the various sub-
categories as they now exist. Needless to say, the various rates in
question would be maximum rates.
(a) Privileged short-term loans: IR + 0-2% 18/
(b) Ordinary short-term loans: IR + 2-4%
(c) Privileged medium-term loans: IR + 2-4%
(d) Ordinary medium-term loans: IR + 3-5%.
4.53 Using the center rate for the changes shown, this results in the
following lending rates as calculated net of the taxes on financial Instru-
ments (TDC and ICAI) as compared with the old rates, assuming relevant
(Paris) interbank rates at 10%.
18/ IR is the International Rate, here taken to be the Paris overnight
interbank money rate.
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11ev Present
Rates Rate
Privileged short-term 11,0 10.7
Ordinary short-term 13.0 17.4
Privileged ve.dium-term 13.0 9.3
Ordinary medium-term 14.0 14.3
Borrorinu/Deposit Rates
4.54 The present deposit rate structure includes 49 different fixed
rates depending upon duration. i.e., whether demand deposits, time deposits
or certificates of deposit ("bons de caisse") and amounts. Following a
decree of June, 1984, inte. 3st payments for all demand deposits have been
abolished as a measure to improve bank profits. With the exception of the
bons de caisse, which can only be held by individuals, all of these rates
are subject to the tax on capital revenues (TPRCM) of 16.5%, which is
withheld at source; the residual Is also subject to income taxation. The
bone de caisse (whose return is fixed for the duration of the deposit) are
exempt from the TPCRM and also benefit from prepaid interest. All deposit
rates are expressed in terms of margin over the base lending rate (taux de
base crgditeur).
4.55 The first step in an interest rate reform would involve a basic
simplification in the rate structure which in itself would encapsulate the
existing rate structure without changing average interest rate levels.
This would bring the number of deposit rates (excluding for demand depos-
its) down from 49 to 13, establishing categories for small and large,
rather than for the ten deposit size categories currently existing. Thus
deposits might be classified as to whether they were for deposits of more
or less than CFAF 5 million. Moreover, just as lending rates would be
maximum rates, deposit rates would be minimum rates and would be changed
once a quarter in line with changes In the average international rate.
4.56 The average after tax differentials between savings deposits,
time deposits and bons de caisse would also be maintained. However, since
time and savings deposits would be exempt from the capital tax, the pretax
differentials between these deposits and bons de caisse would be narrowed
to reflect the change in tax treatment.
4.57 With respect to the determination of the actual structure of
interest rates a benchmark rate might be selected as a base for aligning
domestic rates on international rates. Thus if, for example, the time
deposit rate for three to six months deposits in excess of CFAF 5 million
should be selected as the benchmark rate, all other deposit rates might be
set as a function of that base, which would be set at the aVerage
international rate. These rates seek to keep some congruence with the
existing rate structure, but some variation might be required in order to
ensure that the weighted average structure was in line with the selected
- 63 -
international rate. The schedule of minimum deposit rates might look as
follows:
Minimum Rates on Time Deposits
3 to 6 mos 6 to 12 moS 12 to 24 mos
less than 5 mil. IR - 3 IR - 2 IR - I
more than 5 mil. IR IR * 1 IR + 2
Minimum Rates on Dons de Caisse
less than mil. IR -5 IR 4 IR- 3
more than 5 mil. I -2 IR - I IR
Minimum Rate on Savings Deposits
All deposits IR - 3.5
The actual schedules published by the Ministry of Finance would not
directly refer to international rates, but would define the minimum deposit
rates as the TBC (taux de base cr6diteur) plus the relevant margins.
4.58 Again, assuming the relevant Paris rate to be 10%, this would
result in some representative after tax deposit rates as follow:
new minimum rate Rresent rate
(after tax)
large 6 to 12 mos deposits 11.0 10.00
large 6 to 12 mos bons de
caisse 9.0 8.25
Savings deposits 6.5 6.25
C. A Possible BEAC-Zone Money Market
4.59 For some years now-since 1977-the possibility of instituting a
zone-wide money market somewhat along the lines of that existing In the
BCEAO zone has been under study, largely at the instance of Cameroon. Such
a money market could go a long way in remedying some of the deficiencies of
the BEAC system noted above; in particular, it would permit some degree of
interest rate alignment with rates prevailing on the international money
market, mainly Paris.
4.60 Because the money market would be zone-wide It would have, at
least theoretically, the effect of equalizing interest rates among the zone
mezmbers. As such, however, it has been resisted by the poorer countries
such as Chad and the Central African Republic, which would see their
interest rates rise to levels judged more realistic by countries such as
Cameroon and Gabon. As an interbank market, It would not be managed to
create new liquidity (unless overall circumstances required this), but
would channel excess liquidity among country (sub-) markets. Thus in
theory the money market would not affect the zone-wide operations account
position.
- 64 -
4.61 As planned, the money market would operate principally through
the commercial banking sector and would later be extended to other finan-
cial institutions. The BEAC woald play a pivotal role in the new institu-
tion, particularly in that the Governor would set intervention rates in
line with international rates. Moreover, there would be fixed levels of
intervention by the BEAC on a country-by-country basis (but not on a bank-
by-bank basis); liquidity expansion would be contained by a miaximum
refinancing ratio" which would vary on a country-by-country basis.
However, a considerable degree of decentralization is foreseen (among
others because of the poor communications between countries), and the
national Directorates would be able to carry out their own interventions
within the country ceilings.
4.62 The new money market would be primarily an overnight market, with
surplus banks depositing resources with the BEAC and deficit banks drawing
on them to the extent that their availability allows. Thus the interbank
rate would not primarily function as a market clearing rate, except over
the longer term, as the BEAC decided. Any depositor with the market would
have to have retired all preferential advances from the BEAC before being
able to participate.
4.63 BEAC refinancing would continue as before for all preferential
operations and for ordinary medium-term advances; the new money market
would be primarily oriented toward the market currently satisfied by
rediscounts for ordinary short term-credit would, under its terms, now be
satisfied by money market operations.
4.64 Particularly because the unanimous consent of all member coun-
tries is requirmd for the institution of the money market, and because the
poorer of these countries continue to see it as involving considerable
dangers for themselves, it is not obvious that the market, desirable as a
first step as it appears, will come into being, at least in the immediate
future. 19/ Indeed, a first step toward a more zone-wide integrated money
market under the aegis of the BEAC might be the set of propositions enunci-
ated above, particularly with respect to interest rate determination and
establishing how the new Paris-oriented system might best work. However, a
fundamental difference between the two new systems would be that the higher
deposit rates which would result from tbe system proposed above should
result in higher financial savings (cf. para. 2.11) and an increasingly
stronger ability of the banking system to finance lending out of deposits.
The latter would permit moving toward an overall credit ceiling policy, a
system which would be reinforced by the utilization of compulsory reserves.
19, Moreover, even the Cameroonian commercial banks regard the new idea
with some reticence, especially since with their situation of excess
liquidity it is of no particular interest to them, especially since
liquid funds can now be maintained overseas at attractive rates.
- 65 -
CHAPTER V
THE CAMEROONIAN MONEY AND CAPITAL MARKET
A. Introduction
5.1 The commercial banking sector Is the weakest link in the rather
frail chain which characterizes Cameroon's financial system. Essentially
this is a reflection of the serious undercapitalization of the sector as a
whole, although certain banks have been less affected than others.
However, because bank audits been few and far between, it is difficult to
obtain a clear picture of the true state of-the banks' portfolios. A
number of sources have alluded to a total volume of non-performing
assets--bad debts--held by the commercial banks amounting to a total of
CFAF 120 billion, a sum close to 6.5 times the banks' bad debt reserves of
CFAF 18.4 billion. These non-performing assets amount to roughly four
times the total aggregate capitalization of the commercial banks.
5.2 Commercial banking in Cameroon Is also highly concentrated.
There are ten banks serving the market, but four of them together represent
85% of total credit and 83% of total deposits for the sector as a whole.
This is a matter of some concern, for it implies that liberalization
measures (e.g., with respect to interest rate determination) must be
conjoined with careful Government oversight: the mission was unable to
discern any real measure of competition between the banks even where
regulations permitted this. Moreover, Government ownership, legally set at
a minimum of 35% of banks' capital, now averages considerably more than
this for the sector as a whole, with one bank (the Cameroon Bank) being
wholly-owned and in outright bankruptcy. While the weakened straits of the
banking sector of Cameroon cannot be attributed to the importance of
Government's shareholdings in the sector, it is clear that the policy begun
in the early 1970s of acquiring substantial shareholdings in the banks to
support Cameroon's development strategy has not been a marked success.
While re-capitalization of the banking sector will ultimately be required,
care should be taken that this does not result In an increase in Government
participation.
5.3 It is also widely accepted that the commercial banks are overly
liquid, but data which support this view are subject to varying inter-
pretations. A somewhat complex picture emerges by which public sector
deposits--designed in part to compensate for the banks' weakened capital
base-have led to substantial increases in the banks' virtually risk-free
loans (most likely to their parent banks) rather than to increases in
domestic lending activity.
5.4 The Cameroonian capital market, on the other hand, is scarcely
extant. While the Societe Nationale d'Investissement was set up in 1964
with the specific intention of playing the role of the lead institution in
the national capital market, its history and current situation demonstrate
not only the dangers of aggressive Government intervention in the invest-
ment financing process, but also point up some of the pitfalls involved in
- 66 -
using financial intermediaries to support investments or institutions whose
financial non-profitability is virtually assured. SNI's dismal record with
respect to its portfolio is well-known; what is perhaps less well
appreciated is that its present role as a finacing Institution is the
negative term transformation of its resources. in effect, through its
policies it effectively transforms medlum- and long-term resources into
short-term deposits--a phenomenon which is pervasive In the Cameroonian
financial system.
5.5 Particularly given important manpower constraints, the relative
proliferation of specialized first-tier financial institutions found in
Cameroon is probably not the best way to meet the needs of the borrowers or
investable funds. Given the manpower limitations in question, probably the
most effective means of economizing on these resources is through universal
banking, which uses generic institutions such as the commercial banks to
perform a wide range of specialized activities. Thus the role of the
commercial banks in, for example, term lending or Investment banking, would
be strengthened.
5.6 An alternative structure more attuned to the financing require-
ments of the smaller, less well-organized borrowers than the present one
would have to be defined in recognition of the fact that the formal
commercial banking network is only gradually going to be in a position to
supply their needs (and only then of the more urban-based SMEs). This
alternative structure, in which the new Fonds de Gestion de l'Epargne
Nationale would play an important role, would link to the formal financial
system a network of new and existing institutions catering directly to the
smaller borrowers. It would, moreover, implicitly supply the specialized
information and knowledge specific to the needs of SMEs and rural borrowers
which the universalized commercial banking system would ordinarily not
possess. To the extent realistically feasible the new system would adopt
and adapt some of the features of the informal sector-the tontines.
Although the latter contribute little or nothing to financial inter-
mediation, they know and understand far better than the commercial banks
the markets for credit from which future econom-.c growth is likely to come.
It is this feature which should be emulated and reinforced.
B. The Commercial Banking Sector
5.7 The parlous straits of the commercial banking sector's capital
base is, among others, pointed up by the fact that even before an indepen-
dent (and confidential) BEAC study called attention to the fact that (as of
March, 1984) bad debts in Cameroon were much higher than previously
estimated, the Cameroonian banking system had been responsible for 65% of
total BEAC zone credits but held only 38% of the total equity. As noted
earlier in this study, perhaps half of the estimated CFAF 120 billion of
currently non-performing assets arose from loans to merchants from North
Cameroon. It is broadly agreed that these loans are virtually irrecover-
able. Another sizeable portion of the total is the approximately
CFAF 40-50 billion of government guaranteed loans to public enterprises.
Technically, since these loans benefit from the guarantee of the state,
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they cannot be in default. On the other hand, some of these loans may not
be paying interest, and to the extent that this is the case it clearly
compromises the profitability of the banks holding the assets (and thus
leads to an increase in financial repression). The remainder of the loans
in question are basically of undefined origin.
5.8 Although the Government budget, especially when consolidated with
the parapublic organizations such as the ONCPB and CNPS, had long been in
structural surplus, total public sector deposits rose unusually sharply
from CFAF 76.2 billion in 1980 to CFAF 173.8 billion in 1981; after subse-
quently falling slightly, they have since remained at similar levels.
Obviously a good share of these deposits were placed by ORCPB, CNPS, SNI,
etc., in commercial banks accounts for lack of a better short-term
financial instrument; an undeterminable amount was probably also due to SNH
repatriations. However, a bedrock of Treasury deposits has been held with
the banking system since 1981, varying from CFAF 64.8 billion in that year
down to a relatively stable CFAF 44-46 billion over the past three years.
It is these deposits which were meant tc compensate for the banks' weakened
capital position.
5.9 It is clear that total Government deposits made an important
contribution to liquidity, particularly in 1981, when official deposits
made up over 32% of banks' total deposit base. However, this ratio subse-
quently fell to 27%, which would suggest that if official deposits are
compensating for the banks' weakened equity base, their contribution is in
relative decline.
5.10 There are two possible Indicators of the liquidity position: 1/
(a) the ratio of private sector loans to total deposits (including those of
the Government); and (b) the ratio of net foreign assets held by the banks
to total deposits. It is clear that the first may simply indicate either
that the demand for rediscountable credit had fallev; relative to that for
non-rediscountable credit (since otherwise private sector loans could be
financed by BEAC rediscounts), or that the average rate structure had made
lending from deposits more attractive than rediscounts. 2/ And the second
1/ By liquidity we mean essentially the excess of bank's financial
resources over local uses. If the question is considered from the
more strictly accounting point of view, I.e., the coverage of short
term liabilities by short-term (and thus easily convertible) assets,
we see that short-term assets were more than twice the level of demand
deposits at the end of 1984.
2/ It should be noted that voluntary reserves of the commercial banks
with the BEAC are usually negligible and have historically amounted to
no more than 2-3% of the monetary base. Although technically banks
are obliged to pay off all rediscounts from the Central Bank before
(Footnote Continued)
- 68 -
may, equally, suggest that the spread between Cameroonian and Paris
interest rates exercised a greater pull than formerly. Alternatively, with
the interest rate differential in question being a virtually risk-free
investment, the banks' weakened capital position may have made these
investments relatively more attractive, as compared with inherently risky
domestic loans. In any event, as Table 5.1 shows, the loan/deposit ratio
fell from 1.36 in 1978 to 1.04 in March, 1985; similarly, the relationship
of gross foreign assets to deposits rose sharply from 3.6% in the earlier
year to.21.6X by March. 1985. A summary account of the situation, however,
would seem to suggest that Government deposits, rather than being used to
expand inherently risky domestic lending on a weak capital base, are placed
overseas--with the complicity of the.BRAC-in risk-free loans wi-th parent
banks at interest rates several points higher than the 10% ordinarily paid
on Government deposits, largely as a means of reestablishing -bank profits.
Table 5.1: Liquidity Measures of Cameroonian Banks
(CFAF billions or percents)
- Uro8s
Gross Foreign
Private Foreign Assets/
Credits Deposits Ratio Assets Devosits
__a_ CFAF Billions ---- CFAF Billions
1978 266.8 169.9 1.36 7.1 3.6
1979 323.8 257.8 1.26 6.5 2.5
1980 416.6 312.6 1.33 7.7 2.5
1981 559.7 476.4 1.18 43.6 9.2
1982 678.7 532.4 1.28 23.9 4.5
1983 808.8 610.8 1.32 54.2 8.9
1984 806.1 738.9 1.09 134.2 18.2
3/85 841.0 812.0 1.04 175.5 la 21.6
la In May, 1985 this reached CFAP 190.1 billion.
Mource: BEAC
5.11 Whatever the precise implications of the data it is evident that
Government deposits cannot be fully fungible with losses due to bad debts
because: (a) only Treasury deposits are relatively stable at about CFAF 45
billion, not enough to compensate for the erosion of the banks' capital
base; and (b) the banks must nonetheless pay 10% on Government deposits,
which would not be the case with equity. The result is clear: banks will
be extremely cautious in their lending, and the decline in their
(Footnote Continued)
they are permitted to maintain overseas accounts, this requirement is
ignored in practice.
69 -
profitability--not sufficiently offset by overseas profits--will contribute
to a decline in their efforts to mobilize domestic financial resources.
5.12 It is difficult to assess with any degree of reliability just
what the profit position of the individual banks is, since the calculation
of profits must take into account the assignment of a certain portion of
profits to the provisions account. Obviously if banks have been seriously
decapitalized by the bad debts to which we have alluded, profits would in
considerable degree be eroded--if not entirely wiped out--depending upon
the approach adopted with respect to the allocation of accounting profits.
However, one source-the Journal de l'Economie Africaine (September, 1985)
provides a useful ranking of 150 African banks in thirty-four African
countries in descending order according to dollar volumes. These rankings
are illuminating for they suggest in almost every case that equity ranks
less than total assets in Cameroon by a considerable margin indicating a
below normal capitalization ratio) and that earnings and return on
equity--generally lower ranked than assets, have usually fared relatively
poorly.
Table 5.2: Cameroonian Banks Ranked Against 150 African Banks
According to Dollar Values /a
Return
Total on
Assets Equity Earnings Equity
BICIC 23 54 -
SCB 29 58 91 -
BIAO 34 70 49 43
SCBC 42 75 71 73
BPPC 75 - - -
BCCC 85 63 23
Boston 97 - -
La Possible rankings between 1 and 150; a ranking of one means the highest for the
banks surveyed; a ranking of 150 indicates the bank is lowest of the category for
all banks surveyed.
5.13 Data obtained by the mission for the four largest banks show that
financial margins as a percentage of total assets earned by these banks
were generally more than sufficient to ensure profitability under ordinary
circumstances where a 3.5% spread is enough to cover administrative costs
and constitution of bad-debt reserves. Table 5.3 indicates a generally
healthy position for the banks surveyed, particularly for 1983184.
However, there -.s no way of determining the extent to which the banks in
question have entered into their accounts and capitalized interest payments
_ 70
due but in fact not received, a practice not ordinarily condoned in banking
but nonetheless frequently carried out by African banks. 2
Table 5.3: Financial Margin/Total Assets; Four Leading Banks
(percentages)
81182 82/83 83/84
SCB 3.7 4.3 4.5
SGBC n.a-. n.a. 4.4
BICIC 3.1 3.0 3.9
BIAO 5.1 4.6 4.5
Source: Bankcs' Annual Reports
1. The Commercial Banks as Capital Market Institutions
5.14 Apart from the Cameroon Development Bank (BCD), the commercial
banks are virtually the sole source of medium and long-term lending (i.e.,
up to ten years) in Cameroon; in January, 1985, the connarcial banks
supplied 88% of the total (see appendix Table 1). While such activity--at
28.5% of total lending is high and only exceeded in Gabon-it has
nonetheless been declining from earlier years. The BEAC, moreover, has
played a much more important role in providing term resources than it has
in financing short-term lending. Thus in January, 1985 it supplied 47% of
total resources available for term lending as compared with only 14.5% for
short-term lending. This gives some indication of the importance of BEAC
in supporting term-lending for the economy as a whole.
5.15 More directly relevant, however, is the fact that in January,
1985 long-term foreign borrowings to finance domestic term lending amounted
to 20.5% of the total, while banks' own capital resources (severely compro-
mised, as we have seen) provided another 32.5% of total term resources.
(In December, 1979, the proportions were almost identical.) There are
several points to be noted here. First, BEAC rediscounts provided the
preponderance of term resources, basically short-circuiting the inter-
mediation system. While under the circumstances this was probably the only
possibility, lasting dependence by the banking system on BEAC resources for
term loans can only weaken the development of a strong and indigenous
financial intermediation system. The weaknesses of the current system are
also manifest in the fact that while substantial short-term capital out-
flows take place through the banking sactor (cf. Table 5.1), the banking
system must still rely on foreign borrowing for longer-term capital
3/ This question in fact needs to be clarified through audit.
- 71 -
resources. This also works to short-circuit the system; among other
things, it has the effect of frustrating the domestic development of longer
term portfolio instruments for Cameroonian savers.
5.16 Apart from the fact that the capital base from which long term
resources may be drawn to finance commercial banks' term loans may be much
weaker than the figures suggest, the three above-mentioned sources of term
resources have-at least between 1979 and 1985-been Insufficient to cover
term loans. The difference, which is the amount of such loans which must
be covered by short-term deposits, is the "maturity gap;" in January, 1985
this was CFAF 81.3 billion. 'While a certain level of term transformation
by commercial banks is normally acceptable and even desirable, the banks'
weakened portfolio position has clearly eroded term resources and made such
term transformations increasingly risky.
2. Recapitalizing the Commercial Banks
5.17 Because relatively little is in fact known about the true extent
of the damage to the banks' balance sheets by their "non-performing assets"
it goes without saying that the restoration of the financial soundnesi. of
the banks will require an independent audit in order to permit an
assessment, not only of the full extent of the damage, but also of the most
appropriate measures to take in rectifying the situation. The Government
has been proceeding on a case-by-case basis: Indeed, it is this effort
which is at the origin of the development of several new financial
instruments, particularly the "pret participatif," recently designed to
consolidate government deposits into quasi-equity. These efforts, however,
appear to be proceeding rather slowly, and the case-by-case approach could
be usefully accompanied by greater generalization.
5.18 Probably the most important first step in this direction would be
an accurate accounting of the situation of the public enterprise sector
debt and the degree to which (a) it is still being serviced; and (b) the
degree to which balance sheet restoration may require the retirement of
these debts. Action here should follow the recommendations of independent
auditors, although possibly with the Government caveat that any financial
settlements on its part did not undermine its claims on co-owners. 4/
5.19 Assuming that it is possible to make a determination of what
Government guarantees should be exercised, 5/ it should thereby be
possible to determine the total amounts of financial resources required for
recapitalization, as well as the shares required from each shareholder.
(Presumably these would remain roughly as is, but this would also be
subject to negotiation. It may, however, be desirable for the Government
4/ It is very possibly this aspect of things which may slow the
settlement of non-performing loans guaranteed by the Government.
5/ That is, to the extent that Government has guaranteed domestic
borrowings of public enterprises, which is apparently rare.
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to make known its intentions with respect to changes in taxes, interest
rates and other measures, such as discussed in Chapter IV, since these
would materially improve the operating positions of the banks.)
5.20 A possible recapitalization scheme might be as shown in
Table 5.4, which is based on a number of assumptions the accuracy of which
only a thoroughgoing financial audit can evaluate. Here, non-performing
loans are classified into three categories and amounts roughly cor-
responding to informazion received by the mission. Corresponding to these
three categories, assessments are made as to the likelihood of recovery and
provisions are established accordingly. Thus wbile some debts to the
Northern traders may be recovered, we have assumed irrevocable losses of
80%. Similarly, 20% of all loans to state enterprises may be irretriev-
able, presumably because of lack of adequate guarantee provisions. With
the residual category ("other") being arbitrarily assumed to be 50%
recoverable, total recapitalization (provision) requirements can be
expected to amount to about CFAF 66 billion. As Table 5.4 indicates, fresh
funds may be supplied in a number of different ways appropriate to the
particular situation. 6/
Table 5.4: Possible Recapitalization of Banks
(CFAF billion)
Outstanding Suggested
Non-Performing Suggested Financing Bonds Bonds
Loans /a �4 Provisions /b Fresh Capital Quasi (State) Public
Northern tradters 60 80 48 12 12 12 12
State enterprises 40 20 8 8 - - -
Others 20 50 10 4 4 - 2
24 16 12 14
{a Estimated amounts.
Estimated - will be based on: (i) age of arrears, (ii) securities provided
and related recovery expectations.
5.21 Assuming that the responsibility for bad debts to the Northern
traders is equal to the distribution of shares among parent banks and the
6/ However funds are supplied, care must be applied to ensure that the
new operation does not substitute increased Government participation
for private shareholdings. In any event, sinea most Cameroonian banks
are majority-owned by foreign banks, considerable cooperation on their
part will be required in this effort.
- 73 -
Government, fresh capital financing of CFAF 12 billion mlght be divided
according to shareholdings; a similar treatment of otker bad debts would
add an additional CFAF 4 billion. Presumably the entirety of provisions
required for state enterprise debt would be supplied be the state, at least
to the extent guaranteed. 7/ Similarly, "quasi-capital" could be supplied
through the application of the "pret participatif." This is a debt instru-
ment of five-years' maturity earning a given interest rate and enjoying
participation in profits. Under current Cameroonian legislation this
instrument may be considered as equivalent to equity capital if, as a
source of funds, it amounts to no more than one-half of total equity. The
Government's share in total Issues of this instrument could be purchased
through a transformation of current Treasury deposits; for parent banks new
funds would generally be required.
5.22 The remaining amount of capitalization required--CFAF 26 bil-
lion--might be funded through the issuance of ordinary long-term bonds,
either to the Treasury/CAA, the FGEN, or the general public. Given the
status of the Cameroonian capital market and existing Treasury surpluses,
the bulk of these should be subscribed by the Treasury/CAA. In the case of
the latter, this would again be accomplished by a transfer from current
Treasury deposits, but here the State would be a third party, so that no
increase in Government's share would result. Finally, long-term bonds
would also be issued to the general public, including the FGEN. The bonds
would necessarily bear the joint guarantee of the banks' shareholders,
including the Government. The bonds might provide for sinking funds for
repurchase before maturity (thereby increasing the confidence of the
purchaser and moving toward an incipient capital market); alternatively,
the FNEG itself might make a market in these instruments (as well as In the
prets participatifs) thereby also supporting the development of a local
capital market.
5.23 Certain parent banks have suggested that their liquidity and
profit positions do not permit them to supply adequate financial resources
for recapitalization. 8/ To the extent that this is in fact the case, it
may in some cases be possible for the new FNEG (or the Treasury/CAM) to
constitute a recapitalization loan fund for the parent institutions with
the understanding that the interest (fixed, say, on the Paris interbank
rate) be charged to the parent institution and not the local bank. It is,
however, also possible that the parent institutions wish to reduce their
shareholdings, as some have suggested. A priori, however, the Government
should not, except as a last resort, increase its holdings, although some
7/ Apparently, however, little domestic state enterprise debt is in fact
guaranteed.
8/ This statement, however, needs to be put In perspective of the fact
that the parent banks number among the largest of French commercial
banks.
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argument might be made that the independent FNEG might itself purchase
shares, at least on a temporary basis, particularly for resale to local
investors.
C. Development Banking Institutions: BCI), FOGAPE AND FONADER
5.24 While there is no capital market to speak of in Cameroon (save
the unfortunate example of the SNI), there are nonetheless a number of
institutions which belong to a network which, with the creation of
supporting non-bank financial intermediaries, could represent an important
part of the fabric of an incipient capital market and complement the
activities of the commercial banks. Of these, the Banque Camerounaise de
Developpement (BCD) and FOGAPE, the guarantee fund for SMEs could, together
with FONADER, play a meaningful role. But to understand better the
operations of the Cameroonian financial system in its entirety it is useful
to examine the strengths and weaknesses of these institutionts together with
the more traditional capital market institutions examined below. This will
form the basis for an articulation of a broad reform program leading to a
functioning capital market. Ultimately the nexus of new and reformed
institutions, together with the appropriate selection of new financial
instruments, may form the basis of a "bourse des valeurs." In this context
it bears emphasizing that Cameroon does not lack the long-term resources to
support a domestic capital market, but rather the Intermediary institutions
and financial instruments to play this role. To a certain extent the BEAC
rediscount mechanism, particularly for medium-term loans, reinforces this
problem.
1. Banque Camerounaise de D6veloppement (BCD)
5.25 The BCD was established in 1960 with the assistance of the Caisse
Centrale de la Cooperation Economique to take over development financing
from the former Credit du Cameroua. It was initially charged with a wide
range of activities until other specialized institutions were created to
take over some of its functions. As a development bank, it plays a role
which is intermediate between the commercial banks and formal capital
market institutions. In fact, it has tended to behave much as a commercial
bank; unlike many development banks it also accepts deposits, which have
tended to be mainly from institutional, rather than private sources.
However, in line with BCD's general role, its operations have emphasized
term-lending; between 1979-85, such loans represented about 65% of its
total lending. About 11% of BCD's term loans are long-term in nature.
Notably, however, BCD term loans appear to have an average maturity of
about three years, which appears low.
5.26 Appendix table 5 indicates that the manufacturing and handicrafts
sectors received about 40% of total BCD term loans between 1980-84,
considerably higher than the share of commercial banking institutions.
BCD, moreover, has been more active than the commercial banking sector in
providing credit to the SME's, and in 1983 its loans to these entities
amounted to 23.1% of its total direct credits approved; by 1984, however,
this proportion had dropped to 14.5% of the BCD portfolio. BCD has also
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played an important role in lending to the agricultural sector, where
short-term marketing credits have ave %ged roughly one-half of total loan
approvals.
5.27 A good part of BCD's operations have directly involved the
commercial banks. It is a significant shareholder in seven domestic
commercial banks, and of total government ownership in the banking sector
about 37% of the total i8 represented by BCD shareholdings. However, the
most important aspect of its relationship with the commercial banks Is the
high level of its bank deposits, which amount to over 22% of its total
credits.
5.28 On balance, these figures tend to mask--or even point up-some
grave difficulties. These difficulties, particularly with respect to the
quality of management and the qualifications of personnel, have persisted
despite two loans from the World Bank, close supervision in cooperation
with the CCCE (whose shareholdings amount to 10% of the total). 'These
difficulties have manifested themselves in a number of ways: among others,
BCD loans to the private sector have stagnated since 1983, with doubtful
and unrecoverable loans representing a minimum of 13% of its total
portfolio in 1984. together with the large volume of short-term deposits
being held by the BCD and the importance of its virtually risk-free
agricultural marketing loans ("credits de campagne"), 9/ in lieu of a more
aggressive effort toward the SME sector, the picture is one of a quasi-
capital market institution which is far from doing its job. To a certain
extent this is due to an acute lack of skilled manpower to carry out
banking functions as these are defined, but to some extent it reflects the
difficulty of lending to the sectors where the BCD is supposed to operate.
As noted above, managerial problems also exist. Equally important,
however, is the fact that BCD has never had a clear role, and has never
been able to develop a strategy or plan of action despite the efforts of
the World Bank during the course of Its lending and supervision to BCD: for
all practical purposes the institution is defunct as a development finance
intermediary. In large part because of this, FOGAPE has been created to
perform much the same operations as BCD, essentially leaving the latter as
a shell. It is unclear whether this will lead to a net improvement.
2. Fonds d'Aide et de Garantie des Credits aux Petites et
Moyennes Entreprises (FOGAPE)
5.29 Established in 1975, FOGAPE operated under the general aegis o-
BCD as a guarantee fund for loans to SMEs until 1984, when it was trans-
formed into a full-fledged development banking institution. Unlike BCD,
FOGAPE is not allowed to accept deposits, and is basically dependent upon
the taxation of other financial Institutions, principally the commercial
9/ These loans are essentially export credits and in all likelihood
substitute for foreign capital inflows.
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banks. Thus a one-percent levy oll all new loans is imposed on commercial
banks; they are, moreover, obliged to pay a tax of 10% of their total net
income to FOGAPE's operating fund as well.
5.30 By June 1984, after 10 years of operations, total FOGAPE guaran-
tees amounted to CFAF 3.9 billion (apparently mostly for term loans) as
compared with outstanding term credits from the banking sector of CFAF 226
billion. While the two figures are not strictly comparabXe, they put the
importance of FOGAPE's operations into some perspective. It is, on the
other hand, clear that FOGAPE's operations were essentially aimed at the
smaller and even artisanal size SMEs: with an awerage FOGAPE guarantee
covering 65% of a loan, the average loan guarantee was for only CFAF 15
million. About 60% of FOGAPE's guarantees covered loans made by the BCD.
5.31 In any event, opinion seems to be uniform that FOGAPE's guarantee
operation has been largely ineffective; this may to some extent explain the
lesser importance of the commercial banks' usage of this facility as
compared with the BCD. For the most part guarantees have not been particu-
larly helpful in reducing lending risks to the sectors enjoying the guaran-
tees, since the judicial system has ordinarily required demonstration that
every available legal recourse against defaulters be exercised before the
guarantee be honored, a requirement that has been costly and time-consuming
and which, ultimately, has been a disincentive to the use of FOGAPE
guarantees.
5.32 This was increasingly recognized by the Government and it was for
this -eason that FOGAPE was converted into a full-fledged development
fina .e institution. Although FOGAPE will continue to provide guarantees
and will provide equity and debt financing, as well as technical assis-
tance, to the SME sector, the new institution will in many ways play the
same role as the one originally assigned to the BCD--which has now
basically abdicated its developmental role, to make "safe" loans, e.g., to
export agriculture. This is taking place despite the fact FOGAPE shares
with BCD the same lack of qualified manpower to carry out the operations
which will be expected of it, thus continuing an unfortunate tradition of
creating a new entity upon the failure of the older one without resolving
the underlying problems which led tc its failure in the first place.
Unfortunately, however, it is unlikely that the small- and medium-scale
enterprise sector will be better served unless more fundamental changes are
brought about. In some ways the reinforcement of FOGAPE represents a net
step backwards, since its funding through net increases in taxation on the
commercial banking sector will ultimately lead to an increased degree of
financial repression. The taxes will ultimately yield more to FOGAPE than
the "bons d'Equipement" yield to SNI.
Credit to the Small and Medium-Scale Enterprises: a Program
5.33 While the FOGAPE initiative may help in bringing a greater amount
of credit to the SME sector than has been available through BCD or the
commercial banks, severe problems in reaching this sector will remain. On
the one band, bankers lack the capability (and incentives) for lending to
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the sector: an Important disincentive is the low margins fixed for lending
to the SMEs, which, being limited to 2.5S for re-discounted loans, are In
no way commensurate with the costs and risks associated with lending to the
sector. But capacities are also limited with respect to the project
evaluation or monitoring capabilities required, even with BCD/FOGAPE.
5.34 From the demand side, managerial and administrative deficiencies
are legion, accounting records often absent. collateral non-existent, and
legal recourse weak despite guarantees. It is, in effect, not surprising
that the SME sector is scarcely reached by credit from the formal sector.
5.35 on the other hand, the tontines are available and demand for
their resources remains high despite high interest charges and the maturi-
ties of resources available. Since the socio-economic circumstances within
which loans are made ensure repayment to the tontines there is little need
for the evaluation, review and monitoring process associated with loans
from the formal sector. As important as the tontines may be in the
economic and social life of the country, however, they contribute very
little to the financial Intermediation mechanisms which are necessary for a
modern economy, and to the extent that domestic savings continue to be
directed towards this sector, financial mechanisms underlaying economic
growth will be weak. Moreover, interest rates ranging up to 100% a year on
loans of no greater than a year's maturity do not exhaust the potential
needs of the SME sector.
5.36 Thus what is required is a lending apparatus which conjoins the
role of the tontines in essentially guaranteeing loan repayment while
providing loans at acceptable interest rates and maturities. To a great
extent this implies shifting the locus of SME lending operations to grass
roots institutions, whether credit unions (crfdits mutuels), "caisses
populaires," or otherwise. A number of these already exist in Cameroon;
their success has been mixed. But what is required In addition to what
exists are the mechanisms for transferring, from the apex institutions, the
technical assistance in loan processing and management, as well as the
financial resources in question. With specific reference to FOGAPE (which
should probably be merged with BCD) iI, a more useful role for it would be
for it to cease direct operations with the tinal borrowers and concentrate
on reaching these borrowers via "wholesale" operations. Thus FOGAPE would
work directly with the "retail" institutions, providing both debt and
equity resources, and technical assistance in loan management. Among other
benefits, this arr-agement would permit the economization of scarce banking
expertise.
10/ The Government Is, however, contemplating transforming the BCo into a
"Banque du Commerce ext6rieur". This potential action requires
further study.
- 78 -
5.37 One form which this might take would be through an entre-
preneurial entity (the retailer), which would borrow resources from FOGAPE
for on-lending to individuals which it would itself identify and service;
resources lent--possibly supplied through rediscounting-would, of course.
have to respond to certain requirements with the retailer's legal obliga-
tions being formalized. Thus the new entity-A Small Enterprise Investment
Corporation (SEIC), say--consisting itself of no more than two to four
entrepreneurs-would In part be capitalized by FOGAPE, and permitted to
lend some modest multiple of its capitalization. Members of Individual
tontines, knowing well their own markets, might well find an investment
proposition of-this nature attractive. 11/ FOGAPE, in turn, would be
supplied through rediscounts from the Fonds de Gestion de l'Epargne
Nationalse taxes on commercial bank operations currently supporting it
would be suppressed for reasons explained above.
5.38 The SEIC would, of course, be only one Instrument in bringing
lending operations closer to the smaller borrower. FOGAPE could equally
vell work with the existing institutions described above. A number of
these are self-contained in generating the savings whlch are then re-lent
within the organization. This aspect should in any event be maintained,
but the forging of stronger institutional links with these organizations
via FOGAPE and the FGEN with the formal financial system would ultimately
enhance the workings of the intermediation system as a whole.
3. Fonds National de DEveloppement Rural (FONADER) and Rural
Credit
5.39 In the rural areas, the commercial banks, like BCD, are mainly
involved in the financing of marketing, storing and exporting of agricul-
tural products; their contribution to rural smallholder credit is thus
almost nil, particularly inasmuch as margins allowed on loans to this
sector are insufficient to cover costs of lending, especially given the
fact that secure collateral with respect to land titles is practically non-
existent. To the extent that agricultural production loans are available
fron the commercial banks or the BCD these are almost entirely channeled to
the larger planters.
5.40 FONADER was created in 1973 at least In part to compensate for
this problem; its philosophy was to channel a share of the substantial
11/ It must, however, be emphasized that while the operations of the
tontine members ordinarily escape taxetion this would not be the case
where borrowings from entities such as the SEIC were involved. This
could represent a clear disincentive to the development of SEIC-like
entities. However, it is likely that the long-run advantages
involved, which would include lower interest rates and longer
maturities, should be Interesting. If the SEICs themselves are to get
off the ground, certain tax advantages will probably be required.
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public savings generated by the taxation of export crops (paid through
ONCPB) into rural development projects and programs. 12/ Collaterally with
this, one of its functions was to facilitate the distribution of rural
credit--in effect taxing the producers to lend the resources back to them.
5.41 As with the BCD and FOGAPE, FONADER's activities in rural credit
have been beset with problems stemming from an unqualified staff,
inadequate accounting practices and an organizational structure maladapted
to banking activities. Again as with BCD/FOGAPE, excessive centralization
of activities precluded reaching largo numbers of potential borrowers, who
then were obliged to depend upon informal credit markets.
5.42 However, FONADER, In being essentially a conduit for funds from
official sources to finance development projects, Is basically ill-equipped
to operate as a bank, lacking an incentive structure geared toward
effective financial performance. Despite having access to a substantial
volume of financial resources, FONADER has been unable to fulfill its
mandate and credit disbursements declined from CFAE 2.5 billion in 1979 to
CFAF 1.8 billion in 1984; perhaps no more than 22 of all farmers benefited,
either directly or indirectly, from PONADER's credit programs. Considering
that FONADER's total resources as of mid-1984 were CFAF 38.7 billion (of
which CFAF 24.7 billion were held in cash, or on short-term deposit), its
record with respect to the provision of credit has been particularly poor.
5.43 There are two major groups of cooperative institutions in the
rural financial system, the marketing cooperatives and the credit unions.
The function of the former is mainly the marketing of members' produce. A
number of them have also taken on the role of retail agents for FONADER's
credit, but are themselves generally ill-equipped to carry out this
function. A good part of the problem is that with the basic function of
these cooperatives being the provision of marketing services and input
supply and financing, for which they are seriously underfinanced, these
organizations, in addition to their organizational shortcomings, are poorly
equipped to take on the burden of rural credit distribution.
5.44 The credit unions (crfdits mutuels and caisses populaires) of the
rural areas. which have no ties with FONADER, operate primarily on the
basis of regular savings by members, and have begun to play a significant
role in the mobilization of rural savings. Thus, they are ordinarily self-
financing, and exist with little or no government intervention. To some
extent their self-sufficiency is the basis of their success, and external
Interference of a dirigiste nature could tend to undermine this success.
However, either FONADER or conceivably FOGAPE (in tandem with its
activities in support of SMEs via the credits mutuels) might adopt an
12/ However, perhaps FONADER's most Important function is the importation
and distribution of subsidized inputs.
- 80 -
active program of technical assistance, specifically with respect to
banking and credit operations, to both the marketing cooperatives and the
credit unions; to the extent required, lending operations might also be
supported. Moreover, the apex institutions in question could also act as a
channel for those credits mutuels which now are primarily in surplus, thus
establishing a more effective intermediation function than that presently
existing.
5.45 Unlike the case with the SME sector, however, cash crop produc-
tion in Cameroon is heavily taxed. Here, an important question must be
addressed: rather than taxing producers at present levels, would it not be
appropriate to channel resources--at least those which the Government seeks
to supply as credit--back to the producers via higher prices? Under the
best of circumstances, agricultural credit operations will continue to be
fraught with difficulties and high costs, and there are strong reasons for
suspecting that higher prices, rather thaa increased credit, may be the
best way to supply resources to the sector.
5.46 More generally, most of the potential users of financial services
in rural areas of Cameroon are of two types; semi-subsistence households
with intermittent cash incomes, or small businesses in which turnover is
relatively low and most of the capital is in the form of movable goods
(inventory) or cash. Especially rural households require a safe but
relatively accessible place to keep cash until it is needed, or
exceptionally from which they can borrow, and rural businesses have
analogous needs. For both this implies, at a minimum, access to a safe but
easily accessible place for savings and which preferably provides some
return. For rural businesses to prosper, they need well-functioning
financial markets for both their financial assets as well as credit
requirements.
5.47 With respect to the latter, however, it is difficult to assess to
what extent there is an effective credit demand for productive investments
which is not satisfied by existing financial structures. Indeed, there are
some indications that the "credit needs" of farmers may have been
overestimated, and it has been found in one rural development project that
adoption of production increasing technology was not constrained by a
shortage of capital. An examination of saving and borrowing patterns of
credit union members suggested that the rate of capital accumulated by
farmers was sufficient to support the use of traditional technology and the
limited improved technologies available to them, and that they can (and
have), over time, mobilized cu.pital commensurate with their level of labor
and land usage.
5.48 Thus the priorities for development of the financial sector in
the rural areas of Cameroon are fairly clear; develop robust financis'.
structures which (i) provide a reasonable return on savings; (ii) provide
credit to respond to demand and cover the full scope of rural people's
needs; (iii) increasingly rely more on deposit collection and less on
public sector savings as their main sources of funds; and (iv) are
integrated into the broader financial system. However, the path to this
-81-
mature state of a well functioning rural financial system is more difficult
to trace. It should at least include a preliminary consolidation phase for
existing credit activities which should not be expanded before financial
institutions are in a position to handle a larger volume of funds.
D. Capital Market Operations: Non-Bank Financial Institutions
5.4() While Cameroon possesses a number of non-bank financial institu-
tions which would ordinarily be understood as together playing the role of
a capital market, these institutions, as they operate in the Cameroonian
context, basically do not function as such. Indeed, to a considerable
extent they are involved in negative term-transformation, i.e., the trans-
formation of essentially long-term funds into short-term deposits. The
following categorie& will be dealt with in turn:
(a) leasing and finance companies;
(b) housing finance;
(c) investment finance (SNI);
(d) contractual savings; and
(e) other government-owned institutional investors.
1. Leasing and Finance Companies (cf. appendix tables 7-9)
5.50 In Cameroon, there are two leasing companies in operation:
Societe Camerounaise de Credit Bail (SOCABAIL) and Societe GCnErale de
Leasing (SOGELEASE), as well as two sales finance companies: Socite
Camerounaise d'Equipement (SCE), and the Socigte Camerounaise de Credit
Automobile (SOCCA). Essenti&''y, the capital market operations of these
companies are limited to medium-term financing for chattels. While the
leasing companies finance mainly machinery and equipment including
vehicles, SCE and SOCCA finance consumer durables and vehicles,
respectively. SOCCA and SOCABAIL are captive sales finance companies
organized to provide financing facilities as a selling aid to car dealers;
SCE is a commercial entity providing installment financing of consumer
durables. Thus of the four institutions three are primarily adjuncts to
commercial sales activities serving mainly individuals; they are not direct
competitors with other financial institutions and their impact in
developing financial markets is negligible.
5.51 SOGELEASE, on the other hand, is primarily an adjunct to the
commercial bank by which it is wholly-owned, and was essentially estab-
lished to provide leases which have tax benefits for the parent bank's
clientele as well as effectively to avoid limits to non-rediscountable
credit on the parent bank. About one-half its financial resources for its
leasing operations are provided by BEAC; because of BEAC restrictions,
SOGELEASE does not finance assets with a depreciation schedule in excess of
five years. With SOGELEASE relying on the parent bank for its clients the
company is in effect an extension of bank operations. Although leasing
companies under Cameroonian law are permitted to issue their own financial
instruments, the absence of any securities market forces them to depend
- 82 -
upon their own capital, borrowings from parent companies and BEAC redis-
count operations.
5.52 Because the four companies under study are largely linked to
other business entities their net addition to term resources appears to be
relatively limited. However, with Its relative independence, SOCABAIL
appears to make a greater net contribution thaw SOGELEASE.
2. Housing Finance: Cridit Foncier du Cameroun (CFC)
(Cf. appendix table 10)
5.53 Credit Foncier, the national housing bank, established by the
Government iu 1977, is the only institution in Csmeroon specialized In
providing long-term f4nancing for real estate. Its CFAF 1.5 billion
capital was subscribed by four shareholders, (a) the Central Government
(70%); (b) the Caisse Nationale de Prevoyance Sociale (20%); (d) Caisse
d'Epargne (5%), and the Caisse Nationale de Reassurance (5X). Besides its
capital CFC is mainly financed directly by a one-percent tax on wages and
salaries of non-government employees, and a 2.5S employer's payroll tax.
Moreover, CFC can borrow from the public or international agencies, accept
deposits or use BEAC rediscount facilities.
5.54 Unfortunately, at present terms there is relatively little demand
for housing credit, at least in comparison with CFC's total resources, so
that with respect to its role as a capital market institution CFC has
mainly acted as an administrator of resources obtained from compulsory
payroll taxes which in turn are, in part, allocated to social housing
projects. Thus term-loans for real estate projects represented only 43% of
its total assets as of mid-1984 while liquid assets held in banks were 47%
of the total (as well as a substantial proportion of governwmnt/parapublic
bank deposits). The reasons for CFC's evident failure in expanding housing
credit beyond current levels appear to be largely administrative, much as
the case with the other development finance institutions Investigated; an
obvious problem with CFC is the passive role which it plays in promoting
housing projects. It is, in any event, unclear that housing projects,
social or otherwise, should be financed by payroll taxes; a "plan
d'epargne- logement" linking houslng credit with savings, now practiced in
many francophone countries, would appear to be a more desirable approach.
Whatever CFC's failings as a mortgage lender, however, the institution is
currently highly overcapitalized and excessively liquid. As CFC is cur-
rently constituted, it is thus practicing a high degree of negative term
transformation in using what are long-term resources-the proceeds of
payroll taxes--to create short-term deposits.
3. Sociftf Nationale d'Investissement (SNI)
(cf. appendix 11)
5.55 Established in 1964 as a government-owned holding company, SNI is
in practice the only viable investment ccmpany in Cameroon; although there
are others, their scale and importance are negligible. As suggested
- 83 -
earlier, SNI represents an attempt by the Government to establish a
surrogate capital market In place of the non-existent private market. As
planned, SNI's shareholdings were to go to promising investment under-
takings where the lack of an institutional source of local equity capital
was felt to prevent deserving livestments from being undertaken. In
parallel, it was hoped that SNI could play a stimulative role giving a
forward thrust to the country's industrial policy. Specifically noted in
SNI's enabling legislation was the expectation that once an Investment had
proven profitable, SNI would resell its shares to private Csmeroonian
investors.
5.56 Alas, all of this was not to be, and the effort must not only be
considered a failure, but an expensive one with negative repercussions for
Cameroon's financial system as a whole. Basically, SNI has not been master
of its own house. On the contrary, it has frequently been the arm of
government policy which directed investments into areas which had little or
no chance of profitability. Indeed, SNI was often obliged to make invest-
ments where it was strongly disinclined to do so. In any event, no new
equity investments have been made by SNI since 1983. As of June 30, 1984
the SNI portfolio included 62 ongoing enterprises, of which only one--a
brewery-was truly profitable; two enterprises had been closed down and
seven were in liquidation.
5.57 Although SNI is technically bankrupt with a net worth of minus
CFAF 13.7 billion, it is simultaneously excessively liquid as flows from
the bons d'equipement (to which, it will be recalled, the commercial banks
must subscribe 10% of their liquid assets) build up without being invested
in capital ventures. Thus cash and bank deposits of CPAF 16 billion were
practically identical in size to SNI's investment portfolio and equivalent
to 61% of its total portfolio. Of the roughly CFAF 50 billion of outstand-
ing proceeds from the 4.5% bons d'equipement, somewhat more than 30% are
redeposited with the banks as time-deposits yielding 10%. Particularly
with 12% of SNI's net term borrowings from the rest of the financial system
lost as of June 30, 1984, SNI's role in term resource mobilization has been
markedly negative.
5.58 What we are witnessing here are some rather severe forms of
financial repression. Not only are the banks obliged to lend, at rates
sharply below market, to the SNI, but outstanding bons d'equipement repre-
sent one-quarter of the commercial banks' net term assets in a situation
where they are already overexposed, via the above-described maturity gap.
Since these resources are redeposited in term accounts of two years or
less, the negative maturity transformation is doubly burdensome.
5.59 New legislation (in a decree of August 28, 1985) may bring some
improvements in SNI's operations, particularly with reference to its
explicit requirement that projects which it initiates must be mainly
profitable or viable; moreover, all shares acquired by SNI must be resold
to the private sector within seven years unless the "presence of the SNI is
deemed indispensable by the Government" (article 7. (2)). While the intent
is clearly good, the exceptions appear to leave some Important loopholes.
- 84 -
5.60 To the extent that SNI continues to exist as a financial entity
(about which there is considerable doubt), its continued existence should
no longer remain the major, aberrant and unnecessary source of financial
repression which it now represents. Even in advance of measures to re-
structure the entire public enterprise sector, which should necessarily
involve SNI, a nuaiber of preliminary measures appear to be in order:
(a) the requirement that banks subscribe 102 of their liquid assets
to bons d'equipement should be abolished, and these bonds should
be retired at maturity and not be rolled over (except as may be
required, at market rates);
(b) to the extent made possible by the public enterprise reform,
viable assets should be sold off, if necessary to the Fonds de
Gestion de 1'Epargue Nationale, which could sell the shares in
question, either individually or en bloc; the ultimate role of
the FGEN in this respect would be as a secondary market for the
securities of profitable enterprises. In the absence of an
intermediary institution such as the FGEN, it is highly doubtful
that any attempt to transfer assets of public enterprises
selected for privatization, either in whole or in part, to the
Cameroonian private sector, could succeed;
(e) it would most probably initially be the Treasury/CAM that pur-
chased bons d'equipement to supply proceeds needed by the SNI
following retirement of the 4.5% bonds and their replacement with
instruments issued at market rates; ultimately, as a measure
broadening the Cameroonian capital market such bonds would also
be issued to the public, with the FGEN supporting the secondary
market for these instruments; and
(d) the ultimate role of the SNI would be to maintain those public
enterprises which the Government decided to retain in the public
portfolio despite their unprofitability; thus SNI might play the
role of channel of subsidies as well as (possibly) monitor of
performance under contrat-plan.
4. Contractual Saving Institutions (cf. appendix
tables 12-13)
5.61 As of December 31, 1983, there were five local Insurance compa-
nies in operation in Cameroon which had a nearly 95% share of the insurance
market. In addition there are two subsidiaries and six agencies of foreign
companies, and Lloyd's of London, a U.K. society of private underwriters,
and the national reinsurance fund (Caisse Nationale de R�assurance du
Cameroun: CNRC). The Government's share in the equity of all insurance
companies is roughly 30%; it is, moreover, sole owner of CNRC and
(probably) one other insurance company.
5.62 As is the case in certain segments of the banking sector (BCD and
the Cameroon Bank), the insurance sector is exemplified by the lack of
-85-
current and public information. As of July, 1985, the mo.t recent finan-
cial statements from the sector were 17 months old, neither standardized
nor independently audited. Also similar to other financial institutions in
Cameroon, the finm*ncial position and performance of the insurance companies
is weak, and the average debt/equity ratio for the sector as a whole is
about 20:1. This precarious capitalization is aggravated by recurrent
losses in the automotive insurance subsector (40% of the market) resulting
from frozen premiums.
5.63 In comparison with total assets of the banking system, the
insurance industry in Cameroon remains in relative infancy; its total
assets were only 7% of those of total bank assets. Howev-er, at an
estimated CFAI 60 billion these represent the second largest amount of
total financial assets of the country. This compares with BCD (CFAF 71.7
billion), CFC (CFAF 47.5 billion) and SNI (CFAF 51.2 billion).
5.64 The capital market operations of the insurance companies are term
loans (17% of total resources) about which there is, unfortunately, no
information available. In any event, a significant proportion of insurance
company resources--one-third--is invested in their own buildings; moreover,
short-term loans and bank accounts represented nearly 50% of total
resources. Although the nature of the business--and particularly the
extent to which it is concentrated in the automobile insurance side--is
such that capital market operations are relatively limited, this degree of
liquidity remains on the high side. Because 40% of total premiums are from
automobile insurance, whose payout cycles tend to be of relatively short
duration, however, the Cameroonian insurance industry is unlikely to be
able to contribute very strongly to capital market operations, at least in
comparison with their total assets. This is to some extent exacerbated by
the fact that with the adjustments of government regulated insurance
premiums in line with prices being slow, automotive insurance tends to be
an unprofitable operation. This is the primary reason for the technical
bankruptcy of AMANCAM (100% government-owned), 69% of whose business is in
automobiles. The market for life insurance, moreover, whose business tends
to generate much longer-term resources, is limited by nature of the low-
income levels of most Cameroonian households.
5.65 On the other hand, the use of one-third of total resources for
term investments in real estate for the industry's own use suggests that
alternative term investments are not easily available for profitable use;
in addition, the Investment of 50% of total resources in short-term assets
seems somewhat high despite the nature of the industry. Apart from the
fact that a more frequent adjustment of auto insurance premiums would
probably allow a somewhat greater level of capital market operations,
however, a real contribution of this industry, which represents an impor-
tant volume of total investable assets, is difficult to foresee.
5.66 With perhaps one exception: while we have suggested that the
FGEN be the repository of the financial assets of quasi-governmental
bodies, it is also possible that it could play an intermediary role with
respect to potential private sector capital market institutions as well.
- 86 -
There is, thus, no reason why the new Fonds could not issue medium-term
bonds to the insurance industry as-well as to accept some shorter-term
commercial paper.
5. Caisse Nationale de Prdvoyance Sociale (CNPS)
(cf. appendix table 14)
5.67 The CNPS (National Provident Fund) is a government institution
providing a range of social security services including medical services,
labor and life insurance, and pensions. It is funded through payroll tax
deductions which range between 15.45X and 18.7% of payrolls and has accumu-
lated a substantial amount of resources. Thus as of mid-1984 CNPS has
accumulated total assets of CFAF 131.9 billion. with almost no liabilities.
To some extent CNPS has played the role of capital market institution in
picking up equity shares in manufacturing corporations. These investments,
undertaken under government pressure, were in failing parastatal
operations-principally the most notorious, CELLUCAM (wood pulp) and
CAMSUCO (sugar)-and for the most part had to be written off. Subsequent
investments of a similar nature were channeled through the Government at
CNPS's insistence, and amounted to CFAF 38.5 billion--29.4% of CNPS's
resources--in low-interest term loans. In view of the fact that i:s term
investments were otherwise restricted to investments in its own facilities
(14% of its resources), with 2.5% for other term or equity participations,
the CNPS's role an institutional in capital market investments has been
minimal.
5.68 A corollary of this is that 54% of CNPS's resources which could
be placed in term investnr-nts have in fact been channeled to the banking
sector as short-term investments through sight and time-deposits. Such
deposits represented nearly 85% of total government and parapublic deposits
held with the banks as of mid-1984. 13/ This reflects an enormous negative
term transformation, which represents a substantial degree of de-capital-
ization of the Cameroonian Einancial system. Some of these resources, as
we have seen, flow overseas from the commercial banking sector; because of
the lack of real capital market facilities resulting from such term trans-
formation, large-scale Cameroonian investors themselves are obliged to
borrow from the French capital markets. While this effect is, on balance,
probably not enormous, it remains striking that it is not so much the
absence of term resources which hinders the development of a Cameroonian
capital market as the absence of the requisite financial resou'ces and
intermediary institutions. It is in this context that the development of a
new non-bank financial intermediary must play an overarching role.
131 In this context, it bears repeating that the resources of ONCPB are
nearly half those of CNPS.
- 87 -
E. A "Fonds de Gestion de l'Egarane Nationale (FGEN)"
5.69 At a number of different points in this report reference has been
made for the need, in the Cameroonian financial system, of a true non-bank
financial interaediary which would: (a) permit the spreading of risk; (b)
support and broaden the process of generalized term transformation; (c)
encourage the development of new financial instruments (supporting these
through the establishment of an active secondary market); and (d) supply
the framework for the privatization of appropriate segments of public
enterprises. During the course of the analysis it has become increasingly
clear that the economy requires a degree of financial development beyond
that which existing institutions can provide. In particular, this Implies
a greater degree of independence of the Central Bank--BEAC--not so much in
term8 of the regulation of-aggregate demand, to be sure, but more in terms
of financial development enhanced beyond what the regulatory framework of
the BEAC can provide. In the financial system as presently constituted, it
is clear that BEAC rediscounts will continue to be required, and that some
administrative control over interest rates, even if more closely aligned to
the international market, will be necessary. However, apart from the
control of domestic money and credit and the implementing of the regulatory
functions which normally devolve upon Central Banks, BEAC's role as co-
financer of domestic credit, which as we have argued, tends to short-
circuit and thereby hinder the development of domestic intermediation,
should gradually be taken over by domestic second-tier institutions.
5.70 A new non-bank financial intermediary (which would neither accept
private deposits nor lend to final users) could, and indeed, would be
necessary in helping break some of the sources of financial repression and
underdevelopment in the Cameroon system by "delinking" the financial system
from subsidies or other forms of non-market support which in a number of
ways have prevented the system from developing as it should. While irhe
latter must doubtlessly continue, these should be supported directly by the
budget or by the Treasury/CAA fund; activities of the new FGEN should, to
the extent feasible, be strictly commercial while at the same time working
to reinforce the effectiveness of existing institutions and st!1porting the
development of new and existing financial instruments. This would provide
the financial market with new possibilities for the placement of financial
savings (and encourage the mobilization of such savings); it would also
work to permit an increasing independence of the Paris market, and
ultimately underpin the development of new investment instruments--or
packages thereof-particularly to Cameroonian investors whose access to
international capital markets is necessarily limited. With respect to the
latter, the FGEN would work with the institutional networks proposed above
to strengthen access by the smaller rural and urban borrowers whose access
to credit will form an important part of Cameroon's future growth. An
important role of the FGEN would also emphasize the development and support
of secondary markets, now for all practical purposes non-existent In
Cameroon; in addition it would be an important interface for private
capital market institutions such as insurance and leasing companies. Such
secondary markets would initially be confined to debt instruments (although
SNI-related equities could also be involved early on depending upon the
progress of public enterprise reforms). Debt instruments in question would
- 88 ^
include those associated with the recapitalization of the banks, 141 but
could also include other assets consolidating their shorter-term
liabilities (e.g., via the establishment of CDs). Moreover--to the extent
required--the FGEN could either purchase market-rate SNI bonds, or provide
a secondary market for private purchasers.
5.71 It is evident that ponsibly as much as a decade's work lies
Ahead. New institutions of the nature suggested cannot be completely
designed and implemented from scratch, but must be worked out over a period
of time, adjusting the different elements as the market, development
priorities and domestic and international circumstances require. This does
not mean, however, that a major start is not possible.
5.72 The proposed new Fonds de Gestion de l'Epargne Nationale has a
number of eiements in common with the French Caisse des Depots et
Consignations (CDC) which largely stem from the strong institutional
similarities already existing between French and Cameroonian financial and
legal systems. Thus sources of financing for the new Fonds would come from
much the same sources as for the CDC, particularly the national providence
fund (i.e, the CNPS) and the national savings funds, especially the Caisse
d'Epargne. However, until an institution paralleling that of the French
Caisse Nationale de Credit Agricole is developed, ONCPB surpluses not
directly associated with price stabilization would be assigned to the Fonds
de Gestion. Like the CDC, the Fonds would be an "Atablissement public"
permitting it not only a certain degree of independence in its operating
decisions but allowing it to hire a core of expatriate cadres which would
be necessary until Cameroonian nationals came onstream. Very much unlike
the CDC, however, the Ponds would not in the first instance lend to munici-
palities; moreover, it would itself abstain from providing subsidies or
below-market rate loans: these would continue to be forthcoming from
preferential rediscounts from the BEAC or would be financed from the
Central Government budget itself. This would therefore preclude, for
example, lending for the construction of social housing. The purpose of
these ref ;rictions would not be to deny legitimate financial support to
groups or individuals deemed worthy, but would seek to the extent possible
to avoid the weakening or contamination of the financial system with
respect to its carrying out its role of financial intermediation. As was
noted in Chapter II with respect to one of the few indicators available for
financial deepening--M2/GDP--that of Cameroon is the lowest of the BCEAO
states (save Niger).
14/ The Treasury/CAA operations alluded to above would basically represent
consolidations of current Treasury deposits into equity or "prets
participatifs" and would be associated with public equity
participations. FGEN participations, on the other hand, would of
themselves not change the structure of equity holdings between the
state and private sector.
- 89 -
The Role and Functions of the Fonds de Gestion
5.73 The FGEN would be headed by a Board of Directors whose composi-
tion might be determined as appropriate; essentially it should be indepen-
dent from the Government (and in particular, the Treasury), with its
Managing Director named by the President. While the Government should
clearly enjoy some oversight or review, it is critical that the management
of the Fonds assets not in any way be regarded as a complement to the
resources, say, managed by the CA. 151 The Managing Director would have
extensive powers, and enjoy Ministerial rank. As for the Board of Direc-
tors, it would play the important role of setting forth general investment
policies to be followed by the FGEN and ensuring that the distribution of
its investments were in line with national priorities, remembering,
however, that its activities would be profit-oriented.
5.74 The FGEN would be capitalized directly by the Treasury, with
equity contributions also being made (obligatorily) by the CNPS, ONCPB, the
Caisse d'Epargne and other structurally surplus organizations such as the
Credit Foncier. The debt-structure of the FGEN--as with its French
homologue--would be primarily short-term, one of its main function being
that of term transformation and guarantor of liquidity in secondary markets
(described below). tJnlike the CDC, however, the FGEN would play an
activist role in strengthening existing weaknesses in the Cameroonian
financial system, in particular, those of the commercial banks.
5.75 In principle, member organizations, i.e., the ONCPB, the CNPS,
Credit Foncier, the Caisse d'Epargne and the postal checking system, would
thus hold their excess financial assets as short-term deposits; it is,
however, evident that some controls would be necessary to ensure that
parastatal depositors did not expand unreasonably their own real estate
investments to limit their engagements vis-a-vis the FGEN. Moreover--
unlike the French system--private institutional depositors such as
insurance companies wo-ld be admitted.
FGEN Financial Market Interventions
5.76 We have seen that the commercial banking system is badly under-
capitalized. Moreover, the sector as a whole demonstrates a certain
potential maturity gap problem with term-transformation which may be
15/ The Cameroonian Government is considering establishing an institution
with certain functions similar to those of the FGEN. It believes,
however, that these should be exercised under the direct aegis of the
CAA. If this option is taken, great care should be exercised to
isolate the FGEN-like activities from the management of Treasury
resources. The FGEN should be seen and operated as an independent
profit-making institution even if ultimately subordinate to the
management of the CAA.
- 90 -
excessive in view of the bank's serious undercapitalization. In this
respect the FGEN could play an important role in the rehabilitation of the
sector, basically iu two separate ways:
(a) First, it could fund (i.e., lengthen the torm-structure of) the
deposits its eventual constituent members (e.g., CNPS, ONCPB) now
held on short-term deposit with the banks themselves. As of mid-
1985 these were approximately CFAF 152 billion of the CFAF 198
billion Government deposits (excluding SRI) with the commercial
banks. Obviously-given the other potential activities of the
FGEN--a funding operation could not involve anywhere near the
totality of these resources. However, with the resources in
question having been transferred to the FGEN, the latter could
purchase a certain volume of longer-term debt instruments of the
banks, which might include Certificates of Deposit, essentially
via an open-market bidding process. This would permit the
commercial banks to widen their role as universal banking insti-
tutions (with greater attention to term-loans) as argued for
above. In any event (except as an element of the management of
liquidity within the context of FGEN's overall portfolio), FGEN
would not routinely practice negative term-transformation by
maintaining short-term deposits with the banks in excess of
current liquidity requirements.
(b) Second, consistent with the recapitalization requirements of the
commercial banks, the FGEN would make and support a market for
the mutual-fund-like SICAVa, the latter permitting private
individual shareholdinrgs in the commercial banks as well as in
other corporate entities.
'.77 As explained above the FGEN would participate in the financial
reetructuring measures bearing upon the state enterprise sector vhich
involved the SNI. This in particular would Involve those public
anterpriles being privatized under the terms of the on-going effort to
rehabilitate the sector. While the FGEN under no circumstances would take
niver any unprofitable investments in the SNI portfolio, its assets could be
uted to purchase the shares of financially profitable companies for resale
t" prtvote Cameroonian investors, perhaps via the SICAV, which could permit
nlrme measure of privatization of the public enterprise sector through
telottvely small-scale shareholdings In effect, in so doing the FGEN would
tie playing the role of a stock market. However this activity were carried
Olt, tho Investments should be freely decided upon with no compulsion.
$tt'ii4ld thtie not be the case, the viability of the FGEN itself could be
uwopromsed. WhIle the modalities of any such arrangement would have to be
VveY cstoSlly worked out, the existence of the FGEN would ultimately
rAltef*olly facilltate efforts to reprivatize some industries currently in
0t10 pWtJlic portfolio.
fi+'Jg '1it relevance of FGEN's involvement in this sector would be at
)imiit twrtd0l. Fitat, to the extent that the new organization were able
tIt 1llIti44 nfln an independent entity, it could operate much as an
- 91 -
Investment bank, dealing at arm's length between the SNI and the ultimate
buyers, eotablishing indep idently the values of equity shares being priva-
tized. 16/ Second, to the extent that It acted as an Intermediary in the
purchase of public enterprise shares before resale to the general public it
would also vote these shares Independently of the Government or its
tutelary authority. In any event, the degree to which the FGEN was
involved in the public enterprise restructuring exercise should be left
open. While some type of intermediary operation of this nature appears to
De required if the restructuring effort is to succeed, it is clear that a
major operation could absorb the entirety of its assets, which would
detract from other important tasks.
5.79 At this juncture it would not be desirable for the FGEN to hold
outright the debt instruments of private industrial companies; 171 this
should be the domain of the private sector, including the commercial banks,
whose asset-structure might be made more amenable to such debt through the
indirect support of the FGEN. However, it might be appropriate for the
FGEN to act as a secondary market for such debt instruments, holding them
on a short-term basis for that purpose. "PrSts participatifs" and shares
in SICAVY might thus be issued by concerns other than commercial banks with
the FGEN making a market. Ultimately, In the more distant future the FGEN
could play a role in evening out fluctuations in equities markets.
It--rather than the BEAC-could also rediscount and even resell real estate
Instruments such as mortgages.
5.80 Earlier we considered the Government's support for the establish-
ment of a zone-wide money market; it will be recalled that BEAC was to be
the intermediary institution. It Is, however, clear that the FGEN could
play the same role for Cameroon alone, placing funds on the overnight
interbank markets through a form of auction. It is not clear that this
would have an appreciable impact on the money supply (if at all), since
merely a substitution of financial assets would be involved as Its short-
term deposit holdings were transferied among banks. However, the substitu-
tion of (some) short-term deposits for long-term bank debt which would take
place following the above recommendations could lead to monetary expansion
as the banks, with an assured capital base, expanded their lending. For
the most part, however, it is likely that any operation of the nature in
question would lead to a greater degree of term transformation, to the
development of a wider range of financial instruments, and to the ultimate
diminution of financial repression. In effect, as the deepening of the
Cameroonian financial system progressed, the demand for money supporting
16/ It is clear that to the extent that the Government accepts only
Cameroonian equity participation asset values will be commensurately
lower.
171 It might, however, hold the shares of private companies not associated
with SNI.
- 92 -
the greater degree of financial intermediation would grow, a development of
which BEAC authorities should take account.
5.81 Finally (and particularly with the phase-out of bank taxes
supporting FOGAPE), the FGEN should play the role of refinancing
*CD/FOGAPE/FONADER. Thus loans made from these institutions to third-tier
borrowers such as the cr&dits mutuels or the SEICs could be purchased by
the FGEN.
5.82 It remaius an open question whether the FGEN should be admitted
to the rediscount facilities of the BEAC. On the one hand, permitting this
would probably allow a more rapid development of financial intermediation,
particularly If accompanied by a reduction in rediscounting by the BEAC to
institutions which the FGEN itself supported._ It would also provide a
greater degree-of flexibility with respect to resources from the oNCPB,
whose financial resources, as we have seen, should probably revert to the
private sector tbrough a reduction in agricultural export taxes. On the
other hand, relatively easy access to FGEN resources, themselves fed by
BEAC redisccunts, would probably finally tend to discourage the mobiliza-
tion of private resources. On balance, while it would appear desirable to
permit FGEn1 access to BEAC rediscounts, this should probably be done
sparingly, with BEAC playing the role of lender of last resort, rather than
as co-financer.
5.83 Several further implications for BEAC follow. First, to the
extent that FGEN operations were to be rediscountable, commensurate reduc-
tions in rediscounts to commercial banks would have to be undertaken: i.e.,
global credit restraints would have to be tightened. On the other hand,
where FGEN activities really amounted to a transformation of maturities it
is not obvious that BEAC intervention would be required (although there
would be certain implications with respect to the interest rate structure.)
Thus the funding operations with respect to commercial bank liabilities
discussed above should not require any interventions with respect to
monetary policy; on the other hand, the transfer of resources now on
deposit with the commercial banks from, say, CNPS to the FGEN which were
not used in a funding operation, but rather for support of a SNI operation,
might require increased BEAC rediscounts depending upon the demand for cash
balances of the final recipients of these resources. 18/ In any event,
however, the gamut of changes proposed with respect to interest rate
policy, taxes of financial instruments, abolition of the category of non-
rediscountable loans, etc., is likely to require an even more thorough
review of monetary policy than the establishment of an FGEN, and
considerable trial and error with respect to monetary policy is likely to
be necessary.
18/ Given, however, overseas balances of the commercial banks of between
CFAF 150 and 200 billion, it is unlikely that the institution of the
FGEN would precipitate a liquidity crunch.
- 93 -
5.84 It is also clear that many of the details of the FGEN's activi-
ties and responsibilities remain to be worked out. The baslc goal of the
new institution, however, would be to broaden the process of term transfor-
mation in the economy, provide secondary markets where the flow of
investable funds to desirable borrower has been impeded by their lack, to
help In de-linking the financial system from the support of unprofitable
activities. and to demarcate better the role of taxation/budget system from
the financial system. If any of this can be accomplished, substantial
strides will have been mode toward strengthening the system of financial
intermediation and resource mobilization.
5.85 While the principle of the establishment of a new non-bank
financial intermediary for Cameroon appears well within the realm of the
appropriate, we can, at this juncture, only offer ideas and proposals and
seek to demonstrate their validity. Should an institution of the nature of
the FGEN ultlmately be established, it is very possible that a number of
its functions and modalities will be quite different from those set forth
in these pages. If, however, the strength of the Cameroonian financial
system is to be established on a basis commensurate with the rest of the
economy, the Government owes it to itself not only to examine these
proposals with care, but also to consider alternatives not put forward in
this report.
* 94-
Annendix I
page I of 18
CAHEOON
FTSASCIAL SECTOR REPOME
Financial and Cagital Market Statistics
List of Tabloes
Table 1 s Sumry Accounts of Commercial lank$ and lb evlopsmt Bank - December
1979 - January 1985
Table 2 : Distribution of Bank Loans by Sector
Table 3 : Several Accounts of Major Banks - June 30, 1984
Table 4 Cameroon Development Bank (BCD) - Balance Sheet
Table 5 s Cmmroon Development Bak (lCD) - Sectorial Distribution of Credits Approved
Table 6 s FOWSPE - Summary Balance Sheet - June 30, 1964
Table 7 s teasing Companies - Suwmary Balance Sheet - June 30, 1961
Table a S0CK& - SummaryBalane Sheet - June 30, 1984
Table 9 t SCR - SumMary Balance Sheet - June 30, 1984
Table 10 s Rational Housing Bank - Summary Balance Sheet - June 30, 1984
Table 1 SNI - Sumary Balance Sheet - June 30, 1984
Table 12 s Suinary Balance Sheet of Major Insurance Companies - December 31, 1984
Table 13 s National Reinurance Fund (CSRC) - Swumry Balance Sheet - June 30, 1984
Table 14 : Social Security Fund (COPS) - Summry Balance Sheet - June 10, 1984
Table 15 t ONCPB - Summary Balance Sheet - September 30, 1984
Table 16 s Capital and Net Worth of Manufacturing Enterprises
Table 17 Legal Form of Manufacturing Enterprises
cIn
0#IuL mm
1 .5 Is n . .m 9s 0 .'l1J m ISa - S 'n _0
_ ." _ _t_ _ '5X1_ _2 - - .~ __n _ -- 3a44' _ ___a,,
of dap"as. MA U4 1.0. Alb *s o *ea.,21. 6.0 .
ml - 1m_ ml~ -|.5- 5 -t_ ne ml5- -.*s 'mc a.. -m- _-m
te sw gg"&..... ZEl M46 I ArM If*.#l __..2 . MAEa M_ g _, lA _
OVAN �pWiS COO) 414WS IGS 61.3 11.2 0" 1'. 0.4 85.6 WI.
41 Um.co (me3 -1.4 -35.A Mi 146.5 4.2 5.5 *. I .6 . as M ,, A J
s nt .6.3 4*4.4 *.1 59U.2 4.5 4".S I4.% 90. . .2 14.3 26.1 02.6 2".4 04.3 3s5.& 4.0 no.: u.s Sa.*
es. as (20.5 4a. (0.3) I*0.0) (40.ia (2.4 ( (2s4.5 01.6 OS. (43.1 �tai. t (3.t.) (43.) (31..) ~ 2t.4*(38)(14
m * , 11.8 830.% 581.0 53.6 54.4 14.4 3.* 30.3 p.so * t
de.ae (me) 41 *.5 40.1 540. 53.3 53.3 54.9 n.e *a. n.a g.; '0,
iiWI% 4MA* 3.4 -sa 1. 5. 14.5 n* .1 4.t v .3 P".3 90.3 nu. 6. 544 I. MA 33) 14.8
ie. (me -83. 23. 33. 4 - 4 44 - 0. t * b - @Z 4 - 40t*.1 3.0 -35.4 4.0
^s "* n.z &-a ma nit mit. i*si ^. * asa 'a'. a.. as. *1b*** *. "X4.2 *. 0*.6 5334
MuS 33 55.2s ,"-
- mos. a. ,. -.--oa . . beo -a -b. m-.mqn ai.b. I. -* -nbu __ _ - ,
Its &as3.
a U~~~~~~~~~~~
mot *44""
- 96 -
(WP-57301)
Pap 3 of 18
CAMEROON
CAPITAL MARKETS
Table 2: Distribution of Bank Loans by Sector
(Percentages) a/
December 1980 June 1984
Medium- and Medium- and
SECTOR Short-term long-term Short-term long-term
Agriculture, foresty
and fisheries 5.6 5.0 4.6 3.2
Mining, mainly
petroleum 1.2 18.9 4.2 30.8
Manufacturing 27.7 26.4 20.0 22.2
Water and Electricity 0.3 6.9 1.7 5.2
Construction and
Public Works 6.1 2.3 9.3 1.9
Commerce and Trade 46.4 10.8 42.0 9.6
SiLvices 9.1 9.0 11.4 11.2
Other bl 3.3 20.2 6.7 15.8
TOTAL QQ 1= QQ 1=
Percentage of Total 69.3 30.7 70.1 29.9
a/ Sums may not add-up due to rounding.
gJ mainly loans to individuals.
Source: BEAC: The distribution is based on loans reported to the
Centrale des Risques.
(WP-5730R) _ 97 _
Apueadla I
Page 4 of 18
CANUOON
CAPITAL MAETS
Table 3: Several Accounts of Maior Banks - June 30. 1984
(In billions of CFA Francs)
- l S~~~BAK el-1
BICIC SCB aim SOC TOTAL
Total Assets 239.2 210.8 192.9 173.4 836.3
Total Loans to private sector 204.0 166.6 135.3 142.0 667.9
Non identified Securities af 0.1 0.1 2.9 ..... 3.1
"Bons d'equipement" bf 18.4 12.6 13.0 11.0 55.0
Net Worth 6.0 5.7 S.5 3.8 21.0
.. .. . .. .. . .. . .. .. . .. . .. .. . .. . .... ..... ................*
Acceptances 5.2 2.5 30.4 2.8 40.9
Guarantees 86.2 112.4 79.3 80.8 358.7
Debt-to-equity Ratio (D/E) 42.2:1 36.0:1 34.1:1 44.6s1 38.8:1
D/E if acceptances and
guarantees are included. 57.4:1 56.1:1 54.0:1 66.6:1 57.8:1
Z of Ownership of Major
Shareholder c/ 51.0 d/ 55.4 d/ 65.0 45.0 d/ NA
jiuamwer of Major
I havh.l1A.vR rt 5 3 3 3 NA
a/ No information is available about the nature of these securities,
F/ $iformation as of February 15, 1985.
eJ As of June 30, 1983.
dl Government and governmeot-omned institutions.
ef *Abbreviationaz BICIC: Banque loternationale pour Is
Commerce et ldndustrie du Cameroon
SCB: SociEtd Camerounaise de Banque
BIAO-Caseroon: Banque Internationale pour 1'Afrique
Occidentele Cameroon
SCBC: Societi Generale de Banques au
Cameroon
NAZ =Not Applicable
Source: Published Annual Reports; due to the different classification of
accounts, figures should be considered as estimates.
98 -
Appendtux
CAP*TAL HAIR?, P8e 5 of 1a
Table 4 Cauron mln.t sack
tDnu Ca.ni d l ewelopeusag- lCD)
Balame Skeet I
(tos billions of CIA Vrropes)
Jun 30 -
__ 1982 19|83 t1964
of c-af c of ub%ht
.dium- and mdi m- and wedlim- an
total loa, term Total loom teoc Tot leIa-teor
Cash and ank e 10.
C"b 0.1 0.1 . @4
Local Sanks 5.4 12.8 10.4
Banks Abroad 0.2 0.2 0.2
Short-term Late$ 0 p.l 0-1
total toane 35.0 43. 46.9
Short-term Loas 7.2 13.2 16.4
Mmdius- a" Long Tem Loans 22.4 22.4 24.3 24.3 24.3 24.3
Doubtful Loans 4.3 4.3 4.3 4.3 2.7 2.7
Dnrecovarable Loaoo 1.1 1.1 1.7 1.7 3.4 3.4
Other Dabit Aceounts 2.,2 0.3 3.
DeferreJ AsJets 04 0.8 2.6
Fixed Assets 1.4 1.4 1.6 1.6 1.9 1.9 -
Shares 1.2 1.2 Li I 1.3 1.3
Otber Assets I-.1 5 5.0
TOTAL *39111 30.4 abA. 33.6
L'W_ILrSIUS D W MRti
Bns 0.1 0.1 U.
Total Debt 19.4 29. 2?.2
Short-Te5f 8.4 11.7 9.6
median- *n4 Long-Tem 13.1 13.1 1. 16.1 17.6 17.6
Dveomits 154 IL.4 23.2
other credit Accounot 1. 8.4 ]k
Deferred Liabilities ai l3
Other Liabilities 5/ .8 $.S 8.1 6.1 *.4 8.4
tz Witt b 5.9 8.0 8.0 *. 6.2
Capital 6.0 6.0 6.0
Retained Earnings (0.2) (0.1) 0.1
*at Ince,_ for the Year 0.1 0.1 0.1
MTMAL LZbALIUtS MS
MEL.�2Th 4.4 24.6 30.1 71.7 304
Maturity Gap 3.0
*/ Sus may not add up 4e, to rounding.
ke Includes mocthlp provieno sad depmeletion.
Sources Publisbed Anmua ltports
-99-
Paw 6 *f is
CAHZROON
CAPITAL MAFtIRTS
Table S: Cameroon Develovugt Bank - (lCD)
'Sbectot,al Distribution of CreIts'Apovd
(Ts billion of CFA Irsas)
June 30
1980 1981 192 1983 1984
Short-ton= 12.1 14.3 iza 21.6
Of whchs agricultural
productio and mareting (6.4) (11.1) (12.5) (14.2) (13.9)
Nediu- and loste 7.0 3.9 6. 8.7 7.3
Agriculture 2.5 0.2 3.2 0.6 0.1
Manufacturing and handlerafts 2.5 2.2 4.0 4.2 3.0
Other 2.0 1.3 1.8 3;9 4.2
Total ILA Ui3 2LA8 2B
Credit to small- and
medium-sized enterprises ... ... 6.0 4.2
Guerantees sI 3.4 2.3 7.5 3.8 16.4
lI Settlemnt of BCD guaranteed credits originating fm other financial
iS utitutions.
Source: low (t)
- 100-
Anoendli x
Page 7 of 18
CAMEROON
CAPITAL MARXETS
Table 6: FOGAPE
Sumnary 8alance Sheet - June 30. 1984J'
(In millions of CFA Franos)
Assets Liabilities
Property 112.0 Own Resources 1,887.7
Provisions to cover
Loans to be recovered 94.9 guarantees 79.1
Other Assets 53.5 Other Liabilities 4.4
Net Income of the
Cash and Banks 1,896.2 Period 185.4
(83S deposited at BCD)
Memorandum Accounts:
Cuarantees 3,945.3
aI Except for highlighting some accounts, the summary balance sheet
follows FOGAPE's financial statements presentation.
Source: FOGAPE
-101 -
Apot>dix I
Page 8 of 18
CAMEROON
CAPITAL MARKETS
Table 7: Leasinat Comanies
SSummary Balance Sheet - June 30, 198&4A
(In millions of CFA Francs)0
SOGELEASE SOCABAIL
Assets
Deferred Assets 7.6 -
Leases 4,363.1 2,495.1
Other Assets 92.0 46.7
Liquid Assets 257-5 302.8
TOTAL ASSETS
Liabilities and Net Worth
Net Worth 573.9 536.0
M1Adium- and Long-term Debt 4,009.4 2,122.3
Short-term Debt 136.9 186.3
TOTAL LIABILITIES AND NET WORTH
I/ except for highlighting some accounts, the sumary balance sheets
follow companies' financial statements presentation.
Source: SOGELEASE; SOCABAIL
- 102 -
Ap,d1ix I
Paso 9 of 18
CAMEROON
CAPITAL MARKETS
Table 8: SOCCA
Sumuari Balance Sheet - June 30. 1984"'
(In millions of -CFA Francs)
Assets Liabilities and Net Worth
Deferred Assets 15.0 Net Worth 1,311.5
Property 442.7
Other Assets 2.4 Term Debt 354.0
Short-term Loans 1,833.9
Shares bl 58.8
Other Liquid Assets 379.2 Other Liabilities 1,066.5
Memorandum Accounts:
Acceptances 8,667.7
8I Except for highlighting some accounts, the summary balance sheet
follows SOCCA's financial statements presentation.
bl This may be investments in SOCABAIL.
Source: SOCCA
- 103 -
AMndlx I
Peg. 10 of 1l
CAMEROON
CAPITAL M1ARKETS
Table 9: - SCE
Sumimarv Balance Sheet - June 30. 1984"
(In millions of CFA Francs)
Assets liabailties and Net Worth
Deferred Assets 52.1 Net Worth 236.4
Property 353.3
Other As8ets 3.1 Term Debt 240.8
Consumer Credit 1,197.1 Suppliers Credit 149.6
Inventory 266.1 Other liabilities 1,336.0
(mostly liquid)
Other Liquid Assets 91.1
1.ff62.8;S|2
Memorandum Accounts:
Guarantees or Acceptances
at Lkcept for highlighting some accounts, the suwx:;y balance sheet
follows SCE'a financial statements presentation.
Source: SCE
- 104 -Andix I
Page U of is
CAMEROON
CAPITAL KARKTS
Tale 10: - National 1ousing Jank
(#Ii4it Foncier dui Cameroon - CFC)
OMMIEZv Balance Sheet - June 30. 1984M'
(II mIlliono of CFA Francs)
Asaet! _ Liabilities and Net Worth
1.1 Net Worth 6.0
tt M *iI t.1'- f"ik$J-e 0.1*
k9 . fIf I to 20.S Taxes Levied on
Wages and Salaries 38.2
O'I; k1.ok #W*0 1.1 Savings Accounts 0.3
tf, I (It,t 2. Debt to Beneficiaries 2.1
i) .tit PM5i44tf 2(.2 Other Liquid Liabilities 0.9
0t ,4t';EftP4 fron etionts 26.9
( It 411p* p tovde4d to clients 4.8
ft t # J fo 4sA tow�-ti -(f$ to.tp, the smnwary balance sheet is
Uai. . . 8fit}f.} f*1 ( MMi W f&t(�tfh,t1f4 [I*eotation.
- 105 -
Appendix I
Page 12 of 18
CAMEOON
CAPITAL MARKETS
Table 11: - SNI
Sumnary Balance Sheet - June 30 19841'
(In millions of CFA Francs)
Assets Liabilities and Net Worth
C*Ah and Banks 16.0 Other Liabilities 1.6
Liquid Assets 2.6 Liquid Liabilities 4.5
Loans (Mostly Term Loans) 9.5 Provisions 0.1
Investments 16.9 Term Borrowings 58.8
(Mainly SNI Bonds)
Fixed Assets 6.7 Net Worth (13.7)
TOTAL
a/ Except for highlighting certain accounts, the summary balance sheet
f--tlows SNI's financial statements presentation.
Source: SNI
1 06-
Avmdx I
P.80 1$ of 1a
ta "ee 12
5ww blame. am .9 e .It luoumos Cina.a - 3wabriln. 1964 jI
(tu ailiou et CVS fau..
0aM| asse 0.4 0.3 O..1 04 0.t
#1prey L.i 3.2 1.J 2.2 12.0
TI la 5.6 0.2 0.? 0.5 7.2
R.lutin 59 2.1 2.4 2.5 13 _,
am| .rn . 4_i.0 24A S.# 1.0 13.9
Mor U4"4 Assets 1.? 0.3 1.S 0.1 3.6
Cmb "S so 4. W
VW&3!u Am.? .6 rn
Use vmon 1.7 (0.3) 0.6 0.0 2.6
t"*ern 6.mw a 1.5 0.4 1.3 0.2 3.*4
te*buil rewieloa 1U-Z 10.4 6.3 0.0 42.9
Amttn Sabit S* i L& 2i
TOAL "SaTtaS An
my s 25.0 11.6 130 9. 6
2 Of tbtal 42.6 19.$ 22.1 13.5 100.0
Imaurme"e VmL.aui./ t11.9 0.6 5. 3.4 27.7
of mbilo 4.9 4.7 1.4 14- 12.3
oun" iasuame (41.AX) (0942) (26.62) (32.X) (444)
bekee bes S 36.4 21.9 1U.U U10 69.4
- uamc el kg.Iate to
Use 3mb .. 2 (tSt(is") 1I.7 J .A. 14 10 U 3.3
abt *to 6qty lttiae
(el.) Xu13.7 N.A. 1.3 14.2 20.0
asnw_m to
trowuita (2) 32.4 20.2 31.3 41.7 30.5
Lem to teastsl
?uw Stan (S) 31.9 1.9 .4 6.3 1*.6
Cab Mtd s a e te ibalml 4.6 27.9 6.4 41.7 17.0
ftgwtelaoo (2)
nesarn rameLs to TaebuiAl
ftVtoi. | (2) 25.3 23.1 71.1 10.7 32.4
frs got teo sbuteal
trowtiiao (1) 31.3 30.6 16.1 36.7 29.4
. Seocp for ibligbeiag f omcemeats. "Ad *sti et$ thO oeture of
ooeOwata Ytht bhae diEfetrt e1a.tiftegift, the *uMY halaMIM
bheet. pr,a atiet follow tbat of major eeUPegti.
b/ Sourest asociatid ec os Soceo d'0a'warmese Du C orom.
Abbr.wt ioam s& S tASs Sad C eruuaisd 4'aoeVtraes
MALe� heoutocea Iatuella . SAvicoles do C<mru.g
SuACs StC Nhwoellw d'asurasees do cawsream
CSAls zompa i. CinfmDm ta 4waaua s at de
reeeoaurasaa
Sea s riseamidt Scttau_ute o lo euarme Caepeice _tste*d to the
wimisery of inna
- 107 .
Avoendlx T
Pa8e 14 of 18
CAMEROON
CAPITAL MARKETS
Table 13: National Reinsurance Fund (CNRC)
Sumuary Balance Sheet June 30. 1984A"
(In billions of CFA Francs)
Assets Liabilities and Net Worth
nfferred Assets 0.1 Net Worth 0.8
Property .1.4 Term - Liabilities 1.8
Term Loans
Banks 2.7
Deposits with
Reinsured Companies 3.2
Equity Investments 0.5 Technical Provisions 7.2
Technical Provision
with Concessionaires 1.5 Short-term Liabilities 0.3
Short-term Assets 0.6
8f Except for highlighting some accounts, the summsry balance sheet
follows CNRC's financial statements presentations.
Source: CNRC
- 108 -
Page 15 of 18
CANEROON
CAPITAL MARKETS
Table 14: Social Security Fund
(C8isse Nationale de Prevovance Sociale - CNPS)
Suwmar! Balance Sheet - June 10. 1984As
(In billions of CFA Francs)
Assets Liabilities and Reserves
Deferred Assets 1.0 Reserves 98.1
Property 18.4
Term Loans to the Government 38.5 Short-term liabilities 1.2
Equity Investments 0.8
Other Term Securities 2.3
Other Term Assets 0.3 Net Income 31.7
Time Deposits 56.5
Dauuaud Deposits and Cash 14.1
a/ Except for highlighting certain accounts, the sumuary balance sheet
follows CNPS's financial statements presentation.
Source: CNPS
10- l9o
Apwud8x I
Page 16 of 18
CAMEROON
CAPITAL MARKETS
Table 15: ONCPB
Summary Balance Sheet - September 302 19841'
(In billions of CFA Francs)
Assets Liabilities and Net Worth
Agencies 1.7 Net Worth 108.4
Property 8.5 Government Term Debt -1.8
Term Loans 16.7
Equity Investments 14.7 Short Term Liabilities 12.4
Inventories 0.1
Short-term loans 33.0 Short Term Liabilities
vith Banks 1.0
Other Short Term Assets 2.2
Government 20.0
:.'_: _An postal debt 23.2
deposits
a/ Except for highlighting several accounts, the summary balance sheet
follows ONCPB'S financial statements presentation.
Source: ONCPB
CAMEROON
CAPITAL MAKS
Table 16: Cafltal and Net Worth of tanufacturinA enterariasA
(1n millions of CFAF - June 30, 1979)
Capita) Average Net
Danestit Farelon Retained Net Worth per
Industrial Classificati0n Total privala public privata AubJic Earai ou W:in freCi5&e
Grains, Vegatables & Flour 580 34 - 546 - 27) 8I3 85.3
Other Agroindustry 2,134 453 318 1,363 - 37$ 2,12 626.0
Bakery and Pastry 805 619 55 131 - 495 1,300 46.4
Other food 28 18 - 10 - -16 12 2.4
Beverages and Tobacco 10,797 1,473 2.113 7.211 - 2,38* 13.185 2.19t.S
Texti1es and Clothing 4,0S7 488 804 2.684 8 95* 5.009 167.0
Leather and Shoes 1,668 Is% 375 1.099 31 -167 1,491 298.20
Wood -20 438 -181 -277 - -1,252 -1.272 -60.6
Paper 2,401 1,323 869 209 - 1.621 4,022 211.7
Chemicals 10.618 282 1,466 8,870 - -3,706 6,912 460.8
Rubber and Plastics 9.275 5,274 25 3.966 - 9? 9.366 8SI.4
Construction Materials 2,452 58 964 712 718 651 A,103 775.8
Hctallurgy 9,296 808 2,355 5.202 931 2,195 11,491 2.298.2
Mechanical, Electrical. metallic 2.784 992 270 1.522 - 1.272 4,056 162.2
Transportation Equipwent 344 1S - 329 - 229 573 S73.0
Other mnufacturing 1.493 993 436 64 - 222 1,71S 171.5
TOTAL 58,702 13,416 9.879 33,641 1,766 5,626 64,328 323.3
Percentages 100 22.8 16.8 57.3 3.0 9.6 109.6 N.A.
A/ Manufacturing enterprises included In the industrial census of the Modern sector. include
enterprises with sales of more than CfAF 5 million (Based on the 1978/1979 foreign exchange
rate this was equivalent to about US$23,000).
Source: Direction de la Statistique et de la Comptabilit6 Nationale.
' *
CMER-
CAPITAL NAIKETS
Tahl 17; Leaal Form of manutactuVine Enterprises
(uNber of enterprises - June 30, 1979)
Gener81 Joint
Partner- Venture
ship Limited Contract
Sole (Saocete Liability (Socite
Proprietor- on nsa Comipany Corporation do Part i-
~~~Shia CmD&&iv gale-tif _ {s4.,j gih.M T6U J
Grains. Vegetables a Flour S - 1 2 4 - - 10
Other Agro1ndustry 1 I I 2 - - 4
Bakery and Pastry 12 3 I 8 6 - - 28
Other Food 2 - - I I - I s
Beverages an Tobacco - - - I 5 - - 6
Textiles an Clothing - 4 16 - s 30
Leather and Shoes - - I 4 --
Wood I - - 6 4 ^ - 21
Paper 6 - - 1 a 2 3 19
Chemicals - - - 2 13 - s- 1
Rubber and Plastics - - - 3 8 - - 11
Construction Materials - - - 2 2 ^ - 4
metallurgy - - - 1 4 - - 5
Kechanical, Electrical. Nhtallic S - - 2 20 - - 25
transport Equipment - - - - I - 1
Other Manufacturing 4 - - I 5 o
Total 50 1 2 36 103 2 S *9
Percentages * 25.1 0.5 1.0 18.1 52.8 1.0 1.5 100
Source: Direction de La Statistique et de la Comptabillto Nattonale.
EUt
I
1!�
- 112 - Appendix II
Page 1 of 16
THE FINANCIAL SOCIAL ACCOUNTING MATRIX.
A. A Short Guide to an FSAM
1. An FSAM is nothing more than a series of interrelated accounts
for each of the productive sectors, economic agents and institutions which
follow the basic accounting principle of double entry bookkeeping (King,
1981, p.1). In other words, for the accounts of each sector, agent or
institution, inflows must equal outflows. For example, the liabilities of
the banking system must equal its assets, or that expenditure on GDP must
equal GDP on the product side. In the matrix, each account will consist of
one column representing expenditures and one row representing receipts.
This, of course, implies that a PSAM is a square matrix of dimension equal
to the number of accounts and that the sum of all the elements in a row
will equal the sum of all the elements in the corresponding column. Each
transaction is an expenditure of one account and a receipt by another and
is recorded at the intersection of the appropriate row and column. A
transaction can be viewed as money flowing from the column to the row and
"goods" flowing from the row to the column. However, the entries represent
not only the purchases of goods and services, but also of financial assets
and the direct transfer of resources. An important implication of all the
above is that the entries in the matrix for both real and financial
variables register flows during one fiscal year, not the levels or stocks.
2. Table 1 shows the structure of the PSAMs constructed for
Cameroon. The matrix has seven major accounts. The production, factor,
current, and the Rest of the World current accounts reflect the real side
of the economy and their elements either involve payments for factor
services and taxes, or the selling and buying of goods and services. The
capital account displays both real transactions, e.g., real savings and
investment, and financial transactions. The latter are basically financing
items needed when real savings and investment are not equal for a particu-
lar institution (the usual case). The Financial Institutions, Financial
Assets and the Rest of the World capital accounts display financial trans-
actions, basically changes in the liabilities and assets of the financial
system. Not all accounts are directly related to each other, for example,
the factor and capital accounts are not, reflecting how money and goods
actually flow in the real economy. The non-zero elements of the FSAIs for
Cameroon have been identified in Table 1 by their coordinates which will be
useful in the following sections on the interpretation of FSAHs.
3. The production account displays the transactions originating from
the supply and demand for real goods, services and factors of production.
The account has been further subdivided between activities and commodities.
The activities account reflects the economic activity originating from the
production of goods and services in Cameroon (the supply side of the
economy) and basically corresponds to the producing sectors of an In-
put-Output table. Thus, the activities account's revenues are from exports
(QI), domestic sales or supply (B!), and government subsidies (GI); while
expenditures reflect the use of inputs during the production process:
- 113 - Appendix II
Page 2 of 16
intermediate consumption (A2), payments to labor (A3), payments to capital
(A4), and indirect taxes (A7). The commodity account corresponds to the
domestic market for all goods and services (the demand side of the econo-
my), including those which have been imported. Its column combines total
domestic supply (BI), imports (B17) and tariffs (B7) to yield total supply
at market prices (M9), or absorption. In the commodities row are the
"Incomings" to the account: the proceeds of sales at market prices from
intermediate consumption (A2), household final consumption (E2), government
final consumption (G2), and investment (12+J2+N2).
4. The factor account indicates payments for factors of production
(rows 3 and 4) and the distribution of this factor income to the main
institutions or "actors" of the economy (columns C and D). Thus, labor
value added (A3) is paid to households (C5), to government through social
security contributions (C0), and to the Rest of the World (workers' remit-
tances) (C17). "Capital" value-added (A4), basically the difference
between total and labor value-added, is paid to firms (D6), government (D7)
and to the Rest of the World (D17). The payments from labor and capital to
the overseas account are the net factor services outflows except for
interest on the public debt which is Included elsewhere. The government
receipts from the capital account (D7) are an estimate of net government
revenue from the oil sector, inclusive of profits not directly transferred
to the Central Government by SNH and direct taxes on profits paid by the
foreign oil companies. The government account therefore includes SNH.
Basically, the factor accounts act as transfer mechanisms channeling wages
(from A3) and capital rents (from A4), to the "linstitutions": household
(C0), firms (D6), the government (C7 + D7), and the rest of the world (C17,
D17).
5. Institutions have two sets of accounts, current and capital.
This is to reflect the different economic processes and behavioral assump-
tions underlying consumption (current) and Investment (capital) transac-
tions. The capital account of firms has been further disaggregated into
six subsectors (agriculture-food, agriculture-exports, private industry,
private services, public or parapublic industry and public or parapublic
services) in two of the FSAMs to indicate the way in which the allocation
process works to channel savings to investments in the major sectors.
6. Households' revenues on their current account are labor income
(C0), income from firms in their capacity of "capitalists" (F5), and income
from the government in the form of social security benefits (G5). House-
hold current expenditures consist of consumption (E2), direct income taxes
paid to government (E7), direct net transfers overseas (E17), and savings
(E8). The three cells that remain to be explained in the current account
are all on the expend4ture side (columns). They are retained earnings or
savings of firms (F9), government savings (G10) and net government trans-
fers overseas plus interest on the public foreign debt (G17). All three
savings items are determined as a residual, the difference between current
revenues and current expenditures.
- 114 - Appendix 11
Page 3 of 16
7. Before proceeding with the explanation of the structure of a
FSAM, a few comments about the relationships between National Income
Accounts, Balance of Payments Accounts and a FSAMI may be relevant. All of
the most important national account identities can be derived from the
FSAM. For example, GDP on the expenditure side is the total of row 2 (S2)
minus intermediate consumption (A2) plus the trade balance (QI - B17). GDP
at market prices on the income side is total value added (A3+A4) plus
indirect taxes and import tariffs (A7+37) minus subsidies (GI). The
current account of the balance of payments if in surplus would appear in
R17. if in deficit in Q18 (not shown in Table 1). The circular flow of
income is also reflected in the matrix. Producers pay factors for their
services (A3 and A4) including government's "share" of value-added: Indi-
rect taxes (A7) and import duties (37). The factor accounts then transfer
the income to the institutional sectors either directly (for example C5) or
indirectly (for example F5). The institutions through the current account
either consume, completing the cycle for that income fraction, or save.
These savings (E8+F9+G1O) are either invested directly or channeled through
the financial system back to investment (total investment equals 12+J2+N2)
completing the cycle. The FSAM also displays the leakages to and from the
circular flow of income due to government operations and transactions with
the rest of the world. We will now turn to explaining how the FSAN cap-
tures the workings of the financial systea. The capital account is ex-
plained last as it interconnects real flows to the financial system.
8. Three financial institutions have been identified in the FSAM,
the Central Bank, Commercial Banks and the Informal sector. Other finan-
cial institutions, for example, insurance companies, have been omitted
because preliminary analysis showed them to be relatively unimportant in
Cameroon, and the lack of good data.
9. Row 11 displays the change in liabilities of the Central Bank:
government deposits at BEAC (Jl1), commercial bank reserves at BEAC (011),
currency held outside banks (P11) and foreign liabilities of BEAC (Rll).
Column K shows the changes in BEAC's assets: claims on commercial Banks
(new rediscounted loans - K12), claims on government and other BEAC assets
(K15), and BEAC's holdings of foreign assets (K18). The liabilities of the
commercial bank are shown in row 12: deposits held by households (H12),
deposits held by firms (112), government deposits (J12), loans (redis-
counts) from BEAC (K12) and foreign liabilities (for the most part debt
owed to home offices and not deposit liabilities owed to foreigners) of the
commercial banks (R12). The assets of the commercial banks are shown in
column L: new holdings of "bons d'equipement" (L14) and other assets (debt)
of commercial banks (,15) which will be identified more exactly when
discussing the debt account.
10. There are two important properties of how the PSAM displays the
financial system. First, it should be understood, as stated before, that
all these transactions like all others in the matrix represent flows, i.e..
changes in the liabilities and assets of the banking system, and not
stocks. Second, changes in the banking sector's assets are transactions
with the financial assets account. The FSAM specifies the banking sector
- 115 - Appendix II
Page 4 of 16
as buying debt or equity which is not directly related to a particular
institutional agent, which together with other debt or equity held by other
agents or other financial institutions is transferred as a totality and
then distributed to households, different sectors of production and the
government by the financial assets account.
it. The other financial institution is what has been termed the
"Informal" sector. Its only source of funds is the household sector (H13)
and it places all of its funds in the equity account (M14). Its magnitude
is the residual found by subtracting from total household savings changes
in the holdings of bank deposits and currency by households. The informal
sector measures those real savings of households which are put to use
through intermediation channels different from the banking system. As is
well known, a particular characteristic of the Cameroonian financial system
is the existence of a large and dynamic informal sector organized through
tontines. A tontine consists of a group of individuals interrelated by
some social factor (family, tribe or occupation, for example) who meet
regularly (typically once a month) and deposit a certain amount in a common
fund. This fund is then bid for by the tontine members, who offer differ-
ent terms for the use of the money. Terms vary between tontines, implicit
nominal interest rates run from nil to very high rates. In any cases
tontines offer members an alternative to commercial banks and official
savings institutions, which may not be present in every rural awea, both as
a savings mechanism and as a source of liquidity to finance investment over
and above their own savings capacity during that time period. Typically
only small scale investments are financed through tontines, for example,
improvements in housing, market stalls, taxicabs and small repair or
artisan shops, although there have been reports of large-scale investments
being financed from this source. This type of informal system is what is
being reflected in the FSAM by the informal account.
12. However, the informal sector account may also reflect some direct
investment by households that is not financed through a tontine, especially
investments not directly related to a specific productive sector as, for
example, housing improvement. This investment not directly related to a
productive sector performed by households, whether or not partially or
fully financed through a tontine, is estimated by the FSAMs as will be
pointed out further on. Investments in productive sectors financed through
retained earnings is by definition captured in the FSAM by firms' savings
(F9), but because of the statistical difficulties in distinguishing between
when an individual is acting as an entrepreneur managing a firm or as a
"household" which decides to invest its savings in equity capital, there
may be some funds assigned to the informal sector that should have been
considered regular retained earnings or vice-versa.
13. The Financial Assets Account has been disaggregated into three
sub-accounts: Equity, Debt and Money; these are the three most important
types of assets which are held by financial and other institutions as a
repository of their financial savings. Equity is defined for the purpose
of the FSAM as a claim by the holder of the account on the future returns
of the issuer. Inflows into the equity account are changes in government
-116- AtPendix It
Page 5 of 16
holdings of parapublic enterprise bonds or stocks (S14), new issues of
"bons d'4qu�pement" bought by commercial banks (L14), new funds channeled
through the informal sector (M14) and foreign direct investment (R14).
Outflows from the equity account are direct investments by households in
-housing improvement and other activities not directly related to the
productive sectors (M2), and equity funds used by firms (N9). The debt
sub-account is the loans provided by the domestic banking sector and by
foreign institutions. Inflows into this account originate from the central
bank (K15), from commercial banks (WS), and from the Rest of the World
Capital Account (R15>. The total (SlS), is shown as allocated to loans to
households (08), to firms (09). to the government (010), changes ia re-
serves (deposits) held by commercial banks at BEAC (011) and changes in
overseas assets held by commercial banks (018). The last financial asset,
money, is held by households (N16) and firms (116) for transactions or
precautionary purposes and is issued by BEAC (Pll).
14. We are now in a position to explain the capital account of the
institutional sectors. Through this account the financial and real sides
of the economy are interlocked; the capital account shows the sources and
uses of funds for capital type transactions of the main economic agents or
institutions. For households the sources of funds are real savings (E8)
and loans from the banking sector (08) which may then be absorbed by
changes in bank deposits (H12), channeled to the informal sector (H13) or
held as increases in currency outside banks (H16). Firm have as sources
of funds retained earnings (F9), direct loans frorA the government (J9),
equity funds (other than retained earnings) (N9) and loans from the banking
sector (09), and as uses investment (U2), changes in banking deposits (112)
and holdings of currency (116). Finally, government has as sources real
savings (total revenues less recurrent expenditures) (GIO), loan from the
domestic banking sector (010), and foreign loans (RIO), and as uses direct
investment (J2), loans to parapublic firms (J9). changes in deposits at
BEAC (Jll), changes in commercial bank deposits (J12), changes in partici-
pations in parapublic firms (J14), and changes in overseas holdings (J18).
This last element is an estimate of the net changes in unofficial foreign
reserves held by the government through SNH and has been estimated as a
residual.
15. The capital account can be thought of as an investment bank in
the sense that it collects all savings, domestic and foreign, and spends
tf,m on real or other alternative assets (Dervis, de Meoo and Robinson,
1982, p. 161). It also shows the interrelationships between the capital
accounts of the institutional sectors if disaggregated like the one shown
here and the sources of domestic savings. To analyze the sources of
foreign savings we need to examine the Rest of the World (RoW) account.
16. The RoW account as set up in the Cameroon FSAMs basically re-
flects the sources (colinmm Q and R) and uses (rows 17 and 18) of foreign
exchange. For the current account, sources are exports (Q1), and uses are
imports (B17), net factor services outflows (C17, D17 and part of Glt) and
net outflow through current transfers (El7 and part of G17). If the
current account is in surplus, the net inflows of foreign exchange (R17 or
-117 -A~~$xI
the current account balance) are used to finance the net foreign exchange
gap on the capital account (RIO + RIl + R12 + R14 + R15 - J18 - KIS - #,143.
The capital account of the RoW includes foreign exchange trangnetine-
classified in BOP accounts in both the capital account (in the ROFP rene)
and in changes of official foreign reserves holdings, explanting why the
current account surplus is equal to the foreign exchange gap of the 1si4
capital account in the FSAM.
17. The FSAMs main advantages over alternative methods of presenting
the savings-investment process are three. The first two arise from the
fundamental property of the FSAM that each account and the whole matrti in
general is balanced when the sum of all the elements of a column (expendi-
tures) is equal to the sum of all the elements of the corresponding r-ow
(revenues). First, this constraint imposes consistency on-data whtih,
because they have different sources, are often contradictory. The SAM
framework points out the inconsistencies in the data and shaws the 2<spltcuv
tions across accounts of different judgements on the varinus rngttwte!h.
Thus, putting many different accounts In relation to each other tind FeqVtAIi
ing consistency may give one grounds for departiag from figureo p\ittI$ie
in official tables and at the same time provide a sertes of conFieifiulcy
checks on the magnitude of each transaction. This property ia nperctaly
useful in countries for which the data base Is weak, s for example,
Cameroon. In fact, this property was used extensively Sn the conattifr.tO1
of the FSAMS as will be explained In the next section, The near'nO a4vfsa
tage arising from this characteristic of a FSA1 to that It allown P16ctrio u
range on the size of unknown flows. For each a count total overfl6wu rwbt
equal total inflows, therefore if the total and all but O(ne f tite eitmr.ith
of a column or row are known, the value of thia omising O1cmeni. erIII l-1
calculated by simple subtraction. The two dimensionaI pt(VortY (tf ttho lsl
permits greater power In the estimation of unknown flows than lu;t Dtr4d(
identities. This property also has beoo uoed extefloIVOy tN thoU l.'L$o, tt r
example, to estimate the site of informal savingt biY hbf,ofie(10dC, u-
estimate government and housohold real Savings, iret The utird prrf eif)
that it displays very clearly the role of the govornme,nts, t-otlh thtv1 tl0
fiscal system and through the traneactionr on Sto fe(a,ptnt 6Mnlf, tf1i 0
savings-investment process. The goverOtownt uabwtilo ftilodf, $tlvaujb f:ho tto
system from the private sector and only partial1y rotunef then, ttirf-i.t
direct loans to firms, deposits tn the commereial lanking o et.j tt t.uliu
of equity. As shall be discuosed furtluBr on(, i dSil;l4Yvi f.li t titht IeU
for the government to become a better Intermediaryt
B. SourceandDatar ManipSlto1jI ttftivit F't
18. The basic data noureon uaed In tho rurrii.i. t4 tho ilIP?d ,u
the Official National Ae1omknto fhar oevetoi YtfnAt, tld ,I 11W*t Pit.t1t t"i'
fiscal years 1984 and 1q85, and the DI-A' mrnnetrv 5i vfi5f"i o itt
published quarterlv. In addittion, tthu "7o0d filfil bd.) (uorl hUd (
Guaranteed Deht fahleo fior Coameroiln, th.- i too ttn It .f.u$ it'0 `�,jjWt
years 1984 to 1985, ONCPl}'n latrtwilc 111t-It. I tu> vat v'sliI, v, tI , ;a
World Bank ent. itet u p(I nto If tr(tidt 004 o A.t olq r Iit.(A 1i k* 'Ik f
- t}f, - ~~~Appendix II
i'age 7 of 16
.f; , I it,f loI.t ttik, 4fi f14J!reb ior a few elements Sn the
.. tf -1` ^t tk a /1:11 U!�i afit F riSlrf fecant amount of
U .' -fi. i-, t i :.i tr4 ( bFvm vorown alternatives for
._ , _f, *t.o f t iti (fi wh&t l4tangs" oBhou)d be made to
.{ 1 * '; 4 . if S.s i4 f-1,4ti y p arp: o o. hit ot1Ier words,
' ;.4 S- Wt,., i l.i' vtij41 tooA *oio** t1hat each source had
. ; _ , 4 r,,.4 t. i ff t ityamplo, supf}tti and exports as
e~ . ._ L s.Lt /.'a4r~ ~ r(i- ntil�6 di fvtot fro thot e estmted by
i .. fl c.- U -S*t ei-n 44' *i $.VE5i unbteracy. -fiy the latter we
- ! i 1' ' i t iiti jtrr #Ftri, or'ennrt. hrvje to he equal.
z -_ 4 Z T 7 ' ' ' - 1 s -' i i-ih }t-+ at* -SF Z tg, L t)l W d awi'i fiW rC" .the
-- * . '' t 't "tr r ~fit4 (!t t1i4t RafvafltgefW of the. Fr*A1
; . 4 r - t e 1 -i" f l#'1f l M}gstit it n rsto extent what are the
it.l bi. I tIs**-T (IopAi rtto, r4 tt puhilichchd
,, ;. i .,:ji i;itt Lt.trfi~ fiesstn RE3p n bin general
: . .4 s , .s-foll'tk I1 Fit 0414fl ftt i*. partiE ti 'AF VhriU)A,efG
tl4 { rS f I h 14 lt ii 44444,
* '~~ 4 ~~ ~ j4;. fi.4( t"-1ild VLiAtt(IiF(s tin to uco the
.; . ' J t * t i f a) -7 I LhrtFt tir t i AVfo cAd, r T rfllflQfl
''i~r24.t t r4A': /'7411 $ /i'iv (ii Filith Vt.ti,v (t rth0fiBr
'' A~~ 4 A F ''.4tii( IIII,EI I( 'J (Ati ftt theI
4: !. - . :f' btF p . {s { t 8 ' I ~4t1t hVl ft iL O 't It Vti)f 0
. 4s .....................k......... . 4 't .4 i .1 * 1 .*i.tgo 4S4 II thilifi
i t + t 1 t 7; 1 ttt sif 4 }i l o o pXlt t) fot-lvitip f I t f l4f5 i to- tziffri^
4 kr. . A i tA fi, < 4t J t t-s',5s1f 4f ! f id f fift f4tif titdi UI
z ! * 4 | s ffi $ **t ~t A' A tl t .*lt A 64 41 (si4I*li. 4 i b iv.. 511 It1�tS d {ins
E . * ss t * . t .* 41 ti. f l t.X {XSnl4f SF lAC i5ti4 c}ft1 rvt ,4wS.ffl
r4 U i - rs ' ti i- 14441wsf 5t ft t}.th.f'Fbi)!A!4ff 5(tv.if [tf
*~~~~~ st .'...... .................. [ ..;'. . Iu t*it.~ #3t445 i l.'f { tf4E,,tls f; Wt.IIIt I.i.l'(.t a,
i . f, * F a. , /- f 9tS4 ~. fl I i 4. I SJAI,, I t ,t l
j- 41 V * .z )4h Vi . kl;f .5'tt V1t"t.ti iihil!tt II1 I O,s
} - I } t f ; ; ft S . 4 1 1 ' 4 - 4 t7E f ii t tf f 4 ta i 4 l t lA 1 i t w t i t f l ( l f v
t S 4 4f i~ 1i slI4~.t tti.fftS tf.$4J1tg 544*1 1Heitsl 5A14 1f44L4
i~~~ . j 4 -.444 aM# f'14rit :s i'lot ftb *.(ft fiSt i5 lXtj.'*l 4 �
1.* j r' t'f 4 t.A.1 ts 'td I&. 4-4 #4*4'tr 1bt ti' f*itffAAig, 'p.4J45 I
7 t . t X | ;: t i4 7, i $4.1* A-t tiatI ,'*Fi f..f -..S 7J4{ ~4'w fsfisgX tli ttit 4A*ij
S S4 4. A ,4 4A 4.1' f 4i. 4i*S 4ft� 1 tp',h4A $4* l87f A!
fl S 3 $ _ tif ts .i- .7.A.+ d r.4'F {s-' 54l.f' ,ffti SSi4iV,t ~sj S{tv
$ t . t jf + f j ii-fs f>}t . 1it.eSi14 tSi4 a 44 $414t4.64 fiA l^1ti ts ~4't *f 14,if
* '" -~ 4 . t-* 444 ir i. m*3f 4 t44 W'I 4-I8 i li % 4 ; I 4I-1 $ | i Tt
*, I 0 - [ks ~.& N s , 4A *4 f .. t 14.44i lItAb *4ah 44f{\1stt
-11.9 --
Page 8W 16
total expenditures on GDP did not vary. This incident is a good example of
the advantages of the FSAM approach. The FSAM showed that the two sets of
data, the real data described above and the financial data from BEAC, were
inconsistent. Given that financial data is easier to collect and control
and therefore can be used with more confidence, the real variables were
amended. In addition, rather than reducing private investment, consumption
was a better choice as it is usually estimated in national accounts as a
residual. Finally, as a check on these transformations total government
expenditures from the FSAM were compared to lti figures and were found to
very close. It should be understood that the government investuent figures
in the FSAMs are-gross fixed capital formation and not government capital
expenditures as shown in the Investment Budget.
22. There are other departures from official sources and published
data in the FSAMs. For example, the estimate in the National Accounts of
net payments for services provided by foreign capital were too low if one
takes into account the profits repatriated by foreign private oil firms and
interest on public and private debt. IMP estimates were used Instead.
Private foreign debt was also reduced substantially from un-official World
Bank estimates, especially in 1983 and 1984, so as to achieve reasonable
savings investment balances.
16036112*U iaitem cuagigi caPitaL access, e~~~~~~~~~~~~FIACA ausmus PiNBIIIAL eis;sof ltut
* sC856I lAtlll il A t 1 II I buae- firm as Fao eea P6 Pat bat icmtaI fauvlala 1 11115 1351 6o061321 *VMS I
3~taat1. ( ist. slamCatal2IhmWi lIrn h t Ialh *mi a, i*asp st WIa sod we I u ha ma Ws 4 loweaol lIpsI 65 * tcwrmt C Itwu 2 2
IA S IC 638 I~~~~~ ~~~ I3 I 3a 25 I I 3 a. a 83 1 IS I I3 a2 S 3
..... ................... . .... . ................. ..... .... .. ....... . ......... ..... .... ..... .. ... -----------
"inm smi .t I I a A I
I aetitma.s I 512 I 6I 3. 36 1 so
lI Cmm6tin I a I I aa 142 1W IS) Ia) 36) Se) II) 12 la2 2 I
SLa im 36I 3 334 I1
SLOW I4 AS4 I I 63
............. �.......---- ---------., -.t--.------- -------- -------------.-... -. .-- . ------- - ------------------ --- -- ................
3 *Maid I2e I FS 1 2 I 2
Alaorm 2 hI 2 ga t
lI awNWmmAi I 61 3 kw 1: 1 I 2 1
.-...- ------#.......... ..... . -......-......................--. .....4..... .........
(OSTIA b I I i UaI
I forooo 2 I 2 ft 39 6 I 2 6St
Ua. "O so. I I 2 Eta 69 S I 2 Ita $
tb.6.aadeap 2 3~ ~~3 Flt I I 26k Ik 2 215k
ft. le.ud. a 3 3 Pta I aI lb 2 Sc
tstb. uV. 2 2 2 11 2 of5 3 615 i 11
to.ootd. a . I3g Iu 2 : ft I to
............0...........0--. ........ .. .... . ---- --.-..---------------------- -------------..................J
I3(t raISb sak I I 1 12 813kt 11210 112 Sit 1112 3321Sol 2
isllWwsa 2. I I 62 2 3 i
......................................$.. --~- . .... -. -....-.......................-....-..-. 4 . ....... . ... .....-.......
Earnia 411111 1 I I I 32
Is35 am2 I 1 55 Lii I 2 35 I 21Us
it ft" .1~~~~~~ A 262bi 25 4 :16d tat25 3.1 lom I I 2 3125 a
............------- . ..................... .. ............ ... . .......-... ..... . ...... . ........ ..................
to 98243 2 I I I 141 I 2 614 u a st I
.................4 .-------*_ 1 .4., - --------.---- -----a ---.- -- --------------.a......-.. ... . -.-.-# - .-..--a------ ----- .. -.....4
29 3016. 1)16)1161 I 639 all I gig at I fit fit off I Mt lilt all9 lcSt 342 let 2439lq Si I3 g3 63,9329 I3 of m l 3 hit 2oil all 2 It I i~~
2 2 I I 2 2 2 2 522
-.4......... .----------------------. --.- ------------ --.-------------- ----------.... - .......... .a.... ....*......
O34
k0l, lMiseC PreKt 2 83U.2 8146.9 2821.4 2554 2061.11 6rbos lometc feoduc I 1486.2 219.5 2812.0 2461.40 3395.01
h.ce Omp 88-2 I 45.$ 4.3 -3.0 -11.0 -222.12 buivc. So 38-8 1.6 15.4 9461 21.2 -11.6
NWtfi 46Usi 3 424.0 141.9 445.0 45.2 191.5 I lowls 3.003 340.4 *2.8 5382 M~.) 594.1
6q.is 806.16 I2 I 51.4 52.4 066.61 144.2 3084.2 2 lapts 311.0112 I 51. 30.A 4341.61 541.5 444.5
1.8.8 Ispoo6taw. 8 3450.0 861*4. 2*24.4 2450.5 2M65. 8 Iotal Iubm6.t.s 8 1416.0 160.61 224.1 2445.3 1843.38
cuumptam I U180.61 1111.8 598.8 86012.9 2695. I Lammaptai Ion2.8 83684 8150.4 8945.2 2384.4!
Simmamat I 854. 231.4 214.8 30.1 342.2 I bemaust I M-111 59.8I 8921.0 246.? 1.4 .4
firt&.a I 952.8 86111.1 135*.0 1302.2 U154. I hovae" 8 96.2 812.5 4550. 818.5 2006.0 8
Gross lomleget I 322.11 499,2 53I.5 431.4 143.2 2 r km..Iv.tamt I 2M5. 4W6. so6.1 480.3 1.9 3
faed Iamtmsue 8 306.5 452.2 502.0 M24. 142.68 .1 flood Iommemt * 262.4 448 4 %01.2 454 5 501.58
iaps aM StKck 8 83.5 41.0 38.5 25.4 89.0 3 Cbamw to Stock. I AL.5 41.0 38J 254 89o
kross bashet Sevamp 2 21.4. 446.6 514. 122. 965. I krm. blhstc Bamias 8 2MA. 484.6 442.4 452. no0.?
hI facto litmin 8 -26.8 -58.2 -45.1 -305.5 -128.8 8 hit Fater acum 8 -23.9 -58.2 -611.4 -59.8 4.
hI Cqtald Pqmemte 1 -21.8 -45.4 -51.0 -95.5 -880.0 I at Captal housmts 8 -28.9 -45.4 -IS0 '19.6 1.
hi 1.0w ropedos I -2.6 -5.6 -6.1 -80.0 -88.81 I h Low, Paoamat I -2.0 56 . -80.0 -H.3.8
Cwrriu fIrsfovg 3 -4.4 41.0 -9.0 -5.8 -5.5 2 Lyrist I:moo!i * -4.4 -6.0 -9.1 -5.1 4. 2
Pnat.l I -4.5 -9.1 -1.9 -5.9 -4.8 8 Pivtau 8 -4.3 -9.1 -5.6 -1.9 -4.8 8
6mwomAn o -0.5 8.4 -8.2 -8.2 -1.51 8 Imermeu I 4.3 8.0 -84 -.2 -3.1 8
Luis brnt ka blocs 3 48.4 -800.54 -18.1 -39.4 91.11 Coret kcmt luawo 2 -50.5 -852.6 -84.6 -92.2 -85.,
1 2~~~~~~~~tWI 1W
km.Mie Svup 8 24. 196.4 44.6 482. 6593 b s atos levia I 25.4 25.4 340. 56.0 6838
�-..
latl Spoitr" 1.3 1021 .9 M 2. I 81 18M8w 68o.& 4.1 68.180.0 ".
881986.0 8960896 891196 9011963 8961.864 8 1ito 7l9I260 190146 M98i96 196280 31694
kim. heestac PnmMI 3 ~60.0 861.0 860.0 16.0 860.91 km. Dseta ?rt1 0. 80.0 80. 800. 800.0
6rs wce q 8t1 1 3.5 21.3 -0.8 -25.6 -1.28: 6rs Sqlon 46 8 0. 1.8 24.4 2.0 mg.4
flpowt 16.018 I M0. 38.9 20.4 24.1 25.1 8 flowt 85.011 8 22.4 25.1 24.4 22.0 86.48t
maps n. auks5 8 21.5 298 264 2.5 32.9 am""e to01 8i 24.4 8.i 20.0 20. 20.21
irm kftlicUvs 2 6 0.0 14.5 14.0 1104 68.0 2 rs Lameapte 8to 29.4 1.9 19.4 15.1 12.4 8
&itm 11coouatc I 38. 81.5 8.0 �1.9 88.3 2 S kogort 9i" .1 6.9 0.0 9.5 6.48
ramsedi I.msla.e AM2. 25.1 23.4 24.6 24.88 Stame Naadestmspt2. 24.4 25. 22.5.0 2.
ESa.p...aStuks 2 .......3.0 .1 8.5.. ...... ........ 0.....42.............. .u...m.t......8.0.2...8.4........
Table 3: Savieps on lvestmt in Cemoon.
(fiscal yenrul
: 1973 1974 1975 1974 1977 1971 1919 1980 1981 1982 M9U 1984
Gross levestart hbil CAF) 5 0.3 88.7 120.7 121.7 181.0 239.1 272.b 322.0 49.2 53;.5 451.4 163.2
Gross Mhtia&l SaVimS Ibil CFAFI1 60.4 98.4 90.5 9.O 15I.Y 221.5 194.0 20.6 390. 41.0 412.0 059.3 J
Current kcaunt Otfiact fbil CFAFI . 23.9 -9.7 30.2 31.7 29.9 17.3 75.9 01.4 101.4 11.7 39.6 -96.1
6ross oetwnt it l2 f w) 21.0 1.0 20.6 18.5 23.0 24.7 23.6 23.2 26.3 25.1 5.8 24.6
: a
6ross Natioal Savi It of IP) I 15.1 20.0 15.6 13.7 19.2 22.9 17.2 17.4 22. 21.7 24.2 27.9 S
Current ccont eficit It of6 1 WI 4.0 -2.4 5.2 4.9 3.8 1.8 L4 5.9 6.2 3.4 1.4 -3.1 S
a~~~~~~~~~~~~~~~~~~~~~~~ .
Sources: from 1973 to 1979: Nat:imal kccouts of Cawer..; aid frog 198 to M9s4 Fsa. fer Caseroen.
U
t'll I %1 . I U *at I 6IWI 1 a U ro O i a m yp 30 pl r rt ai u aiun at
:;rafH4:�4: 7 gm 1 Is- i
Ill I I I S I I ~~~~~~~~~~~~~~~~~~~~~~~~~~~ITOm s
U69 I I a)t33I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~$001I
* -~~ ~ ~~~~~~~~ I v* uInotAlt9
rat1 :r ra 41* a :IWPit.3it
V06us : 3 MN"I
lw : as:~~~~~`t II taill Aint 4
314 3 1 lU lilt I~~~~~~~~~~~~~t rev aP u ai
Oh I 19~~~~~~II ~11 I o il I r AV dt..p, b
tat : ii s : O~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~nI*Is Vl mm I Mm
3 1 I I I I ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I tWI "tN
* * I I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ v NM
VW t jo~~~~~~~~~~~~~~~~~~~~~~~~1 tmrrwl
allOw �3~~~~9t It 31111 it UllOt~1111 3l 9l 31 'lv I'l II I6119 iMA I I,3 3I
11 I)) I34 qg t uutq w - p m W iP 1P)419 U t 3i~I93i3 P '!m tlI Plali
gtU 3 o to66 II1 Sto l l I,1 o IIp:hh3WSz '6 9 I A AI 61 tWl IA0 I 003339 I 13I 3339 I �063 I
19)01 4116 1t391 SIUIUU 11633 wil $mn i 1181633 601113641 10113066
wauat We MAe 1U53 It UiqP
.. . . . . ... . ... . .-- - ---- - - - - - - - - - - -- - - - - - - -- - - - - - -- - - --.. .. . . . . . .
2 491 : ft I 1z9 I C -rI'l r * l IV- I ; itC o II0011 2�& *0 ~~~~e stu:uwIwio1163$
its 2C11 I 2&oi Ci lOu~~~~~~~~~~~~ lo
IIN SI I4 4 ApAN S
* I5 4I I ul lloflUii
61~~~~~~~~~~~~~~~~ 2 91 II)IIJMSGI
*-i LO CU *WlD IM 47
I 55 2 GiI vto922 'PIS.IPO
200412 2 2 2~~~~~~~O' 2 ICS Vis 9 2O tiLl 2 I.
la .22 22 2 mwmu u
20109 2 2 * 2 2 2 2 *109~~~~~~~~~~~~~~~~~~~~~~0131
I2St Li291 0l 1 2 i E 2i &I et oi I os 9 us i : 2 rs*ItI 2
I 16 91112jjlAW q lslpIffl W E140111"wl 2 2 2Is911 il 2l"W: 1,0 2wt I , I44tM1]
I 2I 3 20II09301 9113 N03 O03 N03 2 a 2 2 2 1M3N23IM
itbi l8 19 v 1 012va I S1111511 11201 II & SI 1 9 12 3a01 0 2 5 I A2
2 2 ~4' WJ32 nsg~qa A;403 lwjsls~q 4U12IUUA~ UAj 9lbqINq2UIUMAg ~'P!PNPI14IA MP11S@tpa3 S11Aj89
2 S1113A31 20163 ~S2 SIOSSY 2 l#UJUU~IVJ1W32 1N003WS 2mm t Ul0W 1A031 2 3033
Tal :CARIION FM1 FOR 1961112.
(BILLION CFAF�
p ROOU 9c I ON F ACTIOR CUQIRRE NT C a9I I aL F1NmC1U1U1tU11wiul t FINSUC I AL REIT 1OF TOT A
4 ICCOII8N T : A C cO NT 1 AC COUN I ACCOUNT $Central Coumerciae ASS 6E TSI 't I TE UO LO Do I MS
IActivitAh ~Cofod:ties.1 Lebowr C40taI UlsusetapIds FarsSsusmahomlo Fires 6ovtreueutl tal SOaks Inifoirm Equty hAt R" Warrnt Capital
I1I 2 13 4 5 6 7 I 6 9 101I1I 12 IT 1 14 Is 161.I I? la1 19
FSOWIUN ACCOUNIT I A1
I Activatmn 2909.21 45.2 1 1 146.0 1 35W.4
2 Cosmaitit: I 1516.0 i 1 1315.0 271.1I 1 392.2 131.31 I10100 II 3640.6
FACTOR ACCOUT I I1 1I
3 Lebor 736.1 . 161
4CaptaI H 1531I11I1 135.31I
I-----------------------------------4 �---�4� --�................------- ------------------4 �-- --- --- --- ---4 ---- -----------
CoImm ACCOIUNT I11111
SI baubolS 1 705.2 1 M41. 9.4 1 1 I 1463.1 1
I Fires I I 929.61 1 92.81
I 8gwrauwt I 173.0 121.41 24.3 ISM.11 50.1 1 557.61
IllaseboIds * 012117.3 197.4 1
9 FUsas I 18111.3 21.3 1 110.5 .112.2I 420.3 1
IOSoaa4uuest 1 198.31I1. 1 44.31 252.11
FIMANIAL IIPTITUTIONS I
It Cstra inka I I -2.1 1 I2.6 �1.5 1 6.4 1 20.41
I? tCwtauc Oa ksu~ 1. I 27.6 24.1 21.5 1 20.? 1 34.1 134.7
I] Isforeat 1 I I 11.1 I I 1 1.1:
�---- -------------------- -- --------- ------- --�4 � � �� �� -----i--- - ---------.------ -----4 ��--�---------------------------
*FIWNCIAL AwsS 1 I I I I
I4 quloty I 17.4 1 15.2 11. 1: 1 21.3 110.5 I
is.8 * 4.? 119.5 1 1 100 136.2 1
1lias I 1 6 3.4 1 1 1 1.5 I
-- ---------------- ---------�-- �------- -- ----.-------------- 4 ----.� �� � -
IUT OF TIIMU. 11 1 1 1
I7 currt 1 605.01i 6.7 21.4 7.9 36.6 1 I 2 49.7 1
to capital I I I I2.7 1 4J.6 14. ?.F1 123.0 1
� 4�- � -�- ----------- -- -- --�----�- - ------- ........--. ...... . ..---------------�---
19 TOTAL. IEMOITWE 1 351.4 310.6 1 736.1 1135.3 1 1463.1 929.1 557.6 1 97.4 420.3 252.7 1 . 134.1 61.61 :110.5 13.2 �1.5 1 479.1 12.0 1 14075.3
1 1 I I I I 1 1 I
�- � - - --------------- ------...... ---- ------------------- - --�- -
table 7:CAII100N; Fil FOR 598216.
(IILLION CFk'
PR oouac rI ap FA CTIOa c a lfur CA P IT AL accDOOT FINMICSAINUSTIUTIONSJ F II 4 IC I L R ES9T O F OA L
I A C C OI[N ACCOUNT! ACC I9N I Illume- Firns eg pnia priw pub pI* 4 I.Central Cusmwcio sl6 1 lIt 16 t61 4 VOL 0 RIIEV S
1Aktivit.Cauod5t. I Labou Capital lNonslouldi Frms Sort Ihold. faed eg SuE-ap Jed WVt sod WeV I lek Oaksa ImferuSlEquitp 6666 00e Iewrret CapitalI
I16 2 13 4 15 4 716 ta Yb 9c Pd 9. 9* 102I11 12 13 164 Is 141I17 la 1 19
PRDUCHOR ACCO551 I 2 1 2 1.
I Actiwitaus 2 3343.0 I 92.4 1 1 2274642 1 fi181.I
2 Cubmedltis 21110.5 1 5502.2 30.7 1 50.9 66.4 505.3 173.2 39.4 40.3 534.0 s 5 13.4 I 4145.4 1
FACTOR aCOtNT: i1 1 I
3L~le 255.0 2 1 I 2 0 55.0 i
4capital 11414.2 1 1 1 1464.22
DAM JIACCOIJT I 1 I
5 IbsMiaold I I5. 655.0 10.01 I I 66.1
6 Frs2 1070.51 1 11 1 1070.51
I hspsuset I 202.1 144.6 1 26.9 266.621 55.5 1 1 1. 719.)9
COPITAL KCO06 I I I I I 2I
0 Nleusablds I I I t11.4 1 I I 5.4 2 125.2 1
Yifirmstad 14(d& I 2 27.0 1 2 220.0 3.0 2 50.32I
a% it&6tp I I 2 24.5 2 1 At. 24.9 I 2 70.31
prav iod I I 46.0 2 1 42.4 17.9 i 2 506.2 1 t
privlrs WV 54.4 1 I 54.6 76.3 1 2 265.51 0
pubt ink 26.3 1 I I 14. 9.5 12 44.4 25i
pubaWV I I I 33.2 1 564.81 17 .0 50.5 1 7.41
to Cuvmravt I I 2 277.02 1 21 12.9 130.1: 369.9
-------- -4� � .--------4-.....- ------- - - . .- .---.-....�..........�--.----------- ........
FJJIVAI.t JISTITUTS I I 1 I I 2 2I
UCeWtstrela I I 1 1522.62 2 -2.4 7.1 2 -5.1 6 22.2 1
52 �ouuvciai Iam I I 2 24.9 5.6 2.7 4.4 4.4 4.6 41.7 i 55.4 1 .1 33.2 1713.3
IS lofourma I I I 2 95.3 I I I 9.32I
�4�-------- -------- - ------ ------- --- - ------------- - ----------- �---- --- ...----� .........� ..... C
HOWPIIM ASSETS2 I I
i4 Equty 2 I 3.35 10.6 95.321 1 54.0 1 163.5 1
is Idt I ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~I1 4.0 162.51 I' 1 164.42 9612.91f
16 umy I I 1 4.9 0.2 0.3 0.6 0.4 0.4 I I I 1 7.6I
- -- ------- - - ---- -------------------------------.----- ------------- �4-----�.-....--4---------------.--,------
Ku IFTNE MURD I I I I I 1
17 Ewanet I 475.22 5 0.0 57.161 3.9 39.41 1 I I 76.71I
is apital 1I -0.1 1 46 2 22.9 239.6, 2 123.6 I
-~~~ --------------* - -�..4......*-------.------t-4--- ---
19 UTOTE EPEO1TISR. 4161.6 4145.0 I 855.0 1414.2 1 1681.1 1070.5 719.9 1 125.2 5.0. 10.3 606.2 695.5 44.4 47.4 $19.9 2 522.2 173.3 954 1 163.5 162.9 7.1 t M6.7 626.4 1 64766.9 I
�-------------------- - -----�-
0
Appendix II
Page 16 of 16
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